[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
 POISED TO PROFIT: HOW OBAMACARE HELPS INSURANCE COMPANIES EVEN IF IT 

                             FAILS PATIENTS
=======================================================================


                                HEARING

                               before the

                    SUBCOMMITTEE ON ECONOMIC GROWTH,

                  JOB CREATION AND REGULATORY AFFAIRS

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 18, 2014

                               __________

                           Serial No. 113-119

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




                  U.S. GOVERNMENT PRINTING OFFICE
88-826                    WASHINGTON : 2014
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001



              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 PETER WELCH, Vermont
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan        Vacancy
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on Economic Growth, Job Creation and Regulatory Affairs

                       JIM JORDAN, Ohio, Chairman
JOHN J. DUNCAN Jr., Tennessee        MATTHEW A. CARTWRIGHT, 
PATRICK T. McHENRY, North Carolina       Pennsylvania, Ranking Minority 
PAUL GOSAR, Arizona                      Member
PATRICK MEEHAN, Pennsylvania         TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee          GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington             MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming              DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSANTIS Florida


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 18, 2014....................................     1

                               WITNESSES

The Honorable Jeff Sessions, A U.S. Senator from the State of 
  Alabama
    Oral Statement...............................................     6
    Written Statement............................................     9
Mr. John R. Graham, Senior Fellow, National Center for Policy 
  Analysis
    Oral Statement...............................................    11
    Written Statement............................................    14
Mr. Seth J. Chandler, Foundation Professor of Law, University of 
  Houston Law Center
    Oral Statement...............................................    20
    Written Statement............................................    22
Ms. Cori E. Uccello, Senior Health Fellow, American Academy of 
  Actuaries
    Oral Statement...............................................    45
    Written Statement............................................    47
Mr. Edmund F. Haislmaier, Senior Research Fellow, Center for 
  Health Policy Studies, The Heritage Foundation
    Oral Statement...............................................    51
    Written Statement............................................    53
Mandy Cohen, M.D., Acting Deputy Administrator and Director, 
  Center for Consumer Information and Insurance Oversight, 
  Centers for Medicare and Medicaid Services
    Oral Statement...............................................    75
    Written Statement............................................    77

                                APPENDIX

Opening Statement by Rep. Cartwright.............................    94
Data Fact Sheet Prepared by Minority Staff, submitted by Rep. 
  Cummings.......................................................    96
Opening Statement of Rep. Cummings...............................   100
Opening Statement of Rep. Connolly...............................   102
A June 17, 2014, LA Times Report on Obamacare subsidies, 
  submitted by Rep. Connolly.....................................   103
May 2, 2014, CRS Report on ACA Risk Corridor funding for FY2015, 
  submitted Rep. Cartwright......................................   105

 POISED TO PROFIT: HOW OBAMACARE HELPS INSURANCE COMPANIES EVEN IF IT 
                             FAILS PATIENTS

                              ----------                              


                       Wednesday, June 18, 2014,

                  House of Representatives,
 Subcommittee on Economic Growth, Job Creation and 
                                Regulatory Affairs,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:00 a.m. in 
room 2154, Rayburn House Office Building, the Honorable Jim 
Jordan [chairman of the subcommittee], presiding.
    Present: Representatives Jordan, DeSantis, Lummis, Meadows, 
Bentivolio, Desjarlais, Cummings, Cartwright, Connolly and 
Kelly.
    Staff Present: Ali Ahmad, Majority Professional Staff 
Member; Melissa Beaumont, Majority Assistant Clerk; Brian 
Blase, Majority Senator Professional Staff Member; Molly Boyl, 
Majority Deputy General Counsel and Parliamentarian; Caitlin 
Carroll, Majority Press Secretary; Sharon Casey, Majority 
Senior Assistant Clerk; Katelyn E. Christ, Majority 
Professional Staff Member; Adam P. Fromm, Majority Director of 
Member Services and Committee Operations; Meinan Goto, Majority 
Professional Staff Member; Tyler Grimm, Majority Senior 
Professional Staff Member; Christopher Hixon, Majority Chief 
Counsel for Oversight; Mark D. Marin, Majority Deputy Staff 
Director for Oversight; Laura L. Rush; Majority Deputy Chief 
Clerk; Andrew Shult, Majority Deputy Digital Director; Tamara 
Alexander, Minority Counsel; Aryele Bradford, Minority Press 
Secretary; Jennifer Hoffman, Minority Communications Director; 
Elisa LaNier, Minority Director of Operations; Una Lee, 
Minority Counsel; Dave Rapallo, Minority Staff Director; Katie 
Teleky, Minority Staff Assistant and Michael Wilkins, Minority 
Staff Assistant.
    Mr. Jordan. The committee will come to order.
    Senator, we appreciate your being here. You know how this 
works. We do our opening statements, myself and Ranking Member 
Cartwright. Other members are going to be joining us. We have a 
conference going on at this time and some issues that the 
Republican conference obviously has to deal with, so we expect 
members to be here shortly.
    Let us get started. I know how sensitive your time is. We 
appreciate the work you have done and your being here today.
    Today's hearing is the committee's second hearing examining 
Obamacare's provisions that bail out health insurance 
companies. Today's hearing will also examine how the disastrous 
implementation of the law and the President's extra-legal 
actions to unilaterally change the law have likely increased 
the size of the health insurance industry bailout.
    In addition to providing health insurance companies with 
the mandate for individuals to purchase their product as well 
as providing expensive subsidies for people who purchased 
coverage in the Obamacare exchange, the law provided large 
bailouts of health insurance companies. The American people 
have a right to know how much these backdoor bailouts will 
likely cost.
    One day before the committee's last hearing on this issue 
in February, the Congressional Budget Office estimated there 
would not be a taxpayer bailout. Incredibly, CBO estimated that 
insurers would make so much money on their exchange plans that 
they would have to return an excess amount of the profits to 
the taxpayers through Obamacare's Risk Corridor Program.
    While I have great respect for the analysts at CBO, their 
findings in this area do not square with the evidence presented 
by numerous health policy experts. However, my friends on the 
other side of the aisle trumpeted the CBO analysis at that 
hearing, assuring the public that there would be no bailout.
    Due to the contradiction between Administration statements, 
CBO estimates and the widespread sentiment among health policy 
experts, the committee conducted additional oversight of health 
insurance companies' expectations of payments through 
Obamacare's bailout provisions.
    The committee obtained information from 15 traditional 
health insurance companies and 23 Obamacare co-op companies 
that represent about three-quarters, again about 75 percent of 
all the individuals enrolled in Obamacare exchange plans. We 
talked to 15 traditional insurance companies and 23 co-ops 
representing three quarters of the people in the exchange 
plans.
    While the committee is still analyzing the information 
provided by these companies, our initial review has uncovered 
some striking information. First, 13 of the 15 traditional 
health insurance companies expect to collect payments from the 
Obamacare Risk Corridor Bailout Program. None of the 
traditional insurers expect to pay into the program, so 13 
expect to get money from the taxpayers, none of them expect to 
pay as the CBO originally estimated and two say it will break 
even.
    Eight Obamacare co-ops expect to collect payments from the 
Obamacare Risk Corridor Bailout Program. Only one co-op expects 
to pay into the program.
    Third, these health insurance companies and Obamacare co-op 
companies currently expect payments of nearly $730 million 
through Obamacare's Risk Corridor Bailout Program.
    Finally, the health insurance industry expects its taxpayer 
bailout to be about 33 percent larger than it did at the start 
of open enrollment. The information provided by the insurers 
suggests that the total taxpayer bailout could, in fact, well 
exceed $1 billion this year alone.
    The information obtained by the committee shows that CMS 
testimony at today's hearing is simply out of touch with the 
reality. According to CMS' written testimony, ``We anticipate 
that Risk Corridor collections will be sufficient to pay for 
all Risk Corridor payments.''
    Now that we know that the odds of a taxpayer bailout are a 
near certainty, it is crucial for us to understand how the 
Administration plans to funnel taxpayer money to health 
insurance companies to subsidize their profits and under what 
legal authority--I know the Senator will talk about this--the 
Administration claims to be able to do that.
    In addition to examining Obamacare's Risk Corridor Program, 
today we will also examine Obamacare's Reinsurance Program and 
the Risk Adjustment Program. The effect of these two programs 
is to subsidize health insurance companies offering coverage in 
the exchanges with higher insurance premiums on the vast 
majority of Americans.
    The committee has learned that insurance companies directly 
lobbied the White House for the Administration to make the 
bailout programs more generous to insurers. In response to the 
insurers' lobbying campaign, the Administration made several 
changes to increase the size of payments insurers will receive 
through both the Risk Corridor Program and the Reinsurance 
Program.
    Mr. Jordan. Again, I want to thank Senator Sessions, the 
Ranking Member of the Senate Budget Committee, for both his 
work on this issue and for coming here this morning. Senator 
Sessions and his staff on the Budget Committee have produced an 
analysis confirming that the Department of Health and Human 
Services will need an appropriation from Congress to spend any 
money through Obamacare's Risk Corridor. Again, we want to 
thank you for your work, Senator.
    First, we will recognize the Ranking Member on the 
subcommittee, Mr. Cartwright, the gentleman from Pennsylvania, 
who is recognized for five minutes.
    Mr. Cartwright. Thank you, Chairman Jordan.
    Welcome to you, Senator Sessions. It is good to have you 
here today. I am looking forward to a robust discussion.
    Were you ever at a social gathering where there is somebody 
you didn't know who walks up to you and introduces himself. He 
is very pleasant and then he moves on and introduces himself to 
others in the gathering. Then he circles around the whole room 
and gets back to you and introduces himself to you again.
    We have had that happen and you sort of laugh it off as an 
innocent, honest mistake. Then that person goes around the room 
again and he circles back to you a third time and introduces 
himself to you again. I have never had that happen to me, nor 
have I had it happen 50 times because after the third time, you 
start to think wow, this guy is weird,
    Today is the 27th hearing our committee has held on the 
Affordable Care Act. To date, House Republicans have voted more 
than 50 times to repeal, defund or otherwise undermine the law. 
These numbers are truly preposterous and a poor use of the 
committee's and the House of Representatives' limited resources 
at a time when our country faces immense challenges that are 
largely being ignored.
    I want to start out by highlighting for my Republican 
colleagues the number that matters most here today. More than 8 
million Americans have signed up for health insurance plans 
through the Federal and State exchanges. More than 8 million 
Americans can now see a doctor and get critical health services 
that every American should have.
    Insurance companies are no longer allowed to discriminate 
against women, people with cancer, diabetes or other 
preexisting conditions. You people are able to stay on their 
parents' plans until they are 26. Millions of individuals can 
finally access free, preventive health care.
    We have seen the lowest growth in health care costs in 50 
years and billions of dollars in rebate checks have been sent 
to consumers across the country.
    Unfortunately, today's hearing is the latest in a long 
series of Republican attempts to criticize the Affordable Care 
Act. The issue before us today involves three risk management 
provisions in the ACA, reinsurance, risk adjustment and risk 
corridors.
    The committee already examined these provisions in a 
hearing on February 5 of this year. Republicans also failed to 
mention that they were the ones who first proposed the 
reinsurance, risk adjustment and risk corridor mechanisms in 
Medicare Part D where they have been tremendously successful.
    They discourage plans from avoiding enrollees with 
unusually high drug costs and they help lower premiums for 
consumers by stabilizing the insurance market. Now in its ninth 
year, Medicare Part D has robust participation with 39 million 
seniors enrolled. I appreciate the Senator who is here to 
testify before us today voted in favor of that legislation, as 
did 41 of his Senate Republican colleagues and 204 House 
Republicans.
    Nevertheless, Republicans continue inaccurately to describe 
these risk mitigation mechanisms as a bailout to health 
insurance companies. This is a characterization that is just 
plain wrong. Reinsurance is funded solely by contributions from 
insurance companies. Risk adjustment is funded by transfers 
between insurance companies making it budget neutral.
    Under the Risk Corridor Program, the government collects 
funds from insurers with extreme financial gains and makes 
payments to those with extreme losses. It is not a bailout.
    The reinsurance pool amount is set by statute. Payments may 
not exceed the amounts collected from insurers. In April, the 
non-partisan CBO confirmed that the Risk Corridor Program would 
be budget neutral over three year life of the program.
    None of these facts sounds like a bailout to me. The 
Affordable Care Act is the law, already debated for years, 
passed by Congress, signed by the President and helping 
millions of Americans to obtain quality, affordable health 
insurance.
    Rather than continuing to look for any conceivable way to 
attack this law, as my Republican colleagues have done for 
years, my sincere hope is that we can start examining ways to 
help the program run more efficiently and effectively as it 
continues to be implemented.
    Again, I would like to thank the witness for coming to 
testify before us today. I look forward to an informative 
discussion about managing risk in insurance pools.
    Thank you, Mr. Chairman.
    Mr. Jordan. I thank the gentleman from Maryland, the 
Ranking Member of the full committee, and wish to recognize 
him.
    Mr. Cummings. Thank you very much for your courtesy, Mr. 
Chairman.
    Let me extend a warm welcome to our colleague, Senator 
Sessions.
    This is an important topic and I look forward to hearing 
from all of our witnesses today.
    For far too long, in this country, we have been adding to 
the ranks of the uninsured. Before the Affordable Care Act, the 
number of uninsured Americans climbed year after year, 
amounting to what can only be described as a crisis of public 
health. At the peak of this crisis, nearly 50 million people 
went uninsured in America.
    I have always believed that, as a nation, we must and can 
do better. It is a moral issue. This is one of the reasons I 
came to Congress. I am proud to say today that we are doing 
better. More than 8 million people have now enrolled in health 
insurance through the Affordable Care Act exchanges. Millions 
more now have access to care through State expansions in the 
Medicaid Program. Young adults across the country now have 
access to care through their parents' insurance plans.
    Today, I would like to place into the record new data that 
our committee has obtained on this issue. Over the past several 
months, the Majority staff of the committee has been contacting 
health insurance companies that are participating in the 
Affordable Care Act exchanges. They have been requesting data 
about insurance company enrollment projections before the 
Affordable Care Act went into effect, as well as data about the 
actual levels of enrollment after October 1.
    Although the data has some limitations, several conclusions 
may be drawn. First, at the highest level, this new data 
obtained by the committee shows that actual enrollment exceeded 
insurance company projections by four percent. This result was 
achieved despite significant challenges with federal and State 
websites.
    Importantly, the data provided by these insurance companies 
already removed individuals whose plans were canceled because 
they did not pay the first month premium. In addition, there 
has been a lot of concern about whether young people between 
the ages of 18 and 34 were going to sign up for the insurance 
under the Affordable Care Act.
    The new data from these insurance companies shows that 
enrollment among adults in this key age group exceeded 
insurance company projections by nearly 11 percent. The data 
also shows that this age group represented the single largest 
proportion of new enrollees at nearly 27 percent. They are 
getting insured so that they can stay healthy.
    Insurance companies also provided data broken down by 
State. This data shows that enrollment exceeded projections in 
18 of 31 States for which the committee obtained data. Notably, 
some of the largest enrollment increases occurred in 
Republican-controlled States that were hostile to the 
Affordable Care Act.
    For example, the data obtained by the committee shows that 
the actual enrollment exceeded insurance company projections by 
more than 500 percent in Florida. This data is only a sample 
which is one of its limitations, whether this clearly 
demonstrates there is extremely strong demand for quality 
affordable health care, even despite vocal opposition from 
Republican governors, State legislatures and insurance 
commissioners.
    Mr. Chairman, I ask unanimous consent that a fact sheet 
prepared by my staff setting forth this data be entered in the 
official hearing record.
    Mr. Jordan. Without objection.
    Mr. Cummings. Thank you.
    Today, we will discuss the Reinsurance Risk Adjustment and 
Risk Corridor Programs under the ACA. These programs are 
critical mechanisms to health insurance company transition from 
a market in which they discriminated--discriminated--against 
people with preexisting conditions to one in which they must 
compete on the basis of quality and efficiency.
    These programs are key features of the Medicare Part D 
Program, one of President Bush's signature legislative 
initiatives. They were adopted by a Republican Congress. They 
have been extremely successful in the Part D Program and they 
will be successful for the Affordable Care Act.
    Mr. Chairman, again, I thank you for the opportunity and I 
look forward to hearing from a man I have a lot of respect for, 
Senator Sessions.
    Mr. Jordan. I thank the gentleman from Maryland.
    The gentleman from Virginia?
    Mr. Connolly. Mr. Chairman, I would ask unanimous consent, 
Mr. Chairman, that my opening statement be entered in the 
record at this point prior to Senator Sessions testimony.
    Mr. Jordan. I thank the gentleman.
    Mr. Connolly. I also welcome Senator Sessions to our 
committee.
    Chairman Jordan. You beat me to the punch.
    Members have seven days to submit opening statements for 
the record who any of my Republican members who want to do 
that.
    The Honorable Jeff Sessions is with us today. Senator, we 
appreciate that. We appreciate the good work you have done on 
this issue and so many others. The gentleman from Alabama is 
recognized.

   STATEMENT OF THE HONORABLE JEFF SESSIONS, A UNITED STATES 
               SENATOR FROM THE STATE OF ALABAMA

    Senator Sessions. Thank you, Mr. Chairman, Ranking Member 
Cartwright and members of the subcommittee. Thank you for your 
kind words. It is an honor for me to appear before the people's 
House and to share some thoughts that are the product of 
research by my Budget Committee staff.
    They have identified that there are problems with the Risk 
Corridor Program in the President's health law but the issue is 
broader than health care because it impacts the constitutional 
power of Congress.
    As you know, President Obama's healthcare law created a 
Risk Corridor Program in an effort to mitigate risk for private 
companies that participate in the federally-controlled health 
insurance market. The government would collect a portion of the 
profits if a company makes money and pay off a portion of the 
losses if a company loses money.
    Under our constitutional system of government, HHS must 
receive an appropriation from Congress before it can make 
payments to insurance companies that lose money under this law. 
It seems quite clear that the healthcare law left any funding 
of the Risk Corridor Program to a future Congress by not 
appropriating such money as part of the original law.
    According to our own Congressional Research Service, 
``Under longstanding GAO interpretations, an appropriation must 
consist of both a direction to pay and a specified source of 
the funds.'' The law does not meet those requirements.
    This principle flows from the plain language of Article I, 
Section 9, Clause 7 of the Constitution which the House 
jealously guards and the Senate should, which states ``No money 
shall be drawn from the Treasury but in consequence of an 
appropriation made by law.''
    Already this year, CRS has twice issued this statement 
seeming to accept the GAO interpretation. Yet it does appear 
that HHS intends to make risk corridor payments without 
congressional appropriations. The regulations and statements to 
insurance companies and the budget they have submitted suggest 
that.
    Without an explicit appropriation, any money spent on this 
program would be an illegal transfer of funds. It is bedrock 
constitutional law.
    It has been suggested that the Obamacare Risk Corridor 
Program is the same as the Risk Corridor Program for Part D of 
Medicare. This is plainly false. That law, Part D, included a 
mandatory appropriation for just that purpose. President 
Obama's healthcare law contains no such language.
    To carry out their plans, the President's fiscal year 2015 
budget requests the authority to collect and spend money from 
authorized user fees. HHS would also apparently use the 
authority as justification to redistribute money collected from 
profitable plans or to even raid other funds for this purpose. 
Such authority from the budget is unlikely to happen.
    If approved, this would give HHS unchecked discretion over 
these funds creating a multibillion dollar slush fund. Our 
research indicates that if Congress does not either provide a 
funding source through appropriations or grant the 
Administration new authority to shift around funds, then any 
risk corridor payment HHS makes would be illegal.
    Should the Administration persist in doing so, it would be 
subject to prosecution under the Antideficiency Act. Of course, 
we hope they will avoid taking that step. Your hearing today 
could help impact their decision.
    Although they seem to have clearly indicated they intend to 
do so at this date, the implementation of the President's 
health law has been marked by a series of unilateral actions by 
the President and the Executive Branch officials that undermine 
the rule of law, in my opinion, and public confidence. This is 
far the larger pattern of executive lawlessness and 
unilateralism that has caused great unease throughout the 
country.
    Sadly, the Senate has failed to defend Congress' 
congressional prerogative. The House, by contrast, is to be 
applauded for its defense of the Constitution as exemplified by 
the hearing today. I would urge lawmakers in both parties to 
act in defense of Congress and the authorities delegated to it 
by the Constitution. James Madison would expect no less.
    Thank you, Mr. Chairman, for the opportunity to share these 
thoughts with you.
    [Prepared statement of Senator Sessions follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.001
    
    [GRAPHIC] [TIFF OMITTED] 88826.002
    
    Mr. Jordan. Thank you, Senator. Again, we appreciate your 
work on this issue and so many others, and your focus here 
today on the importance of adhering to the Constitution and the 
rule of law.
    Senator Sessions, thank you again very much.
    We will now take a short recess to get ready for our first 
panel.
    [Recess.]
    Mr. Jordan. The committee will come to order.
    We want to welcome our distinguished panel: Mr. John R. 
Graham, Senior Fellow, National Center for Policy Analysis; Mr. 
Seth J. Chandler, Foundation Professor of Law, University of 
Houston Law Center; Ms. Cori E. Uccello, Senior Health Fellow, 
American Academy of Actuaries; and finally, Mr. Edmund F. 
Haislmaier, Senior Research Fellow, Center for Health Policy 
Studies, The Heritage Foundation.
    Pursuant to committee rules, all witnesses will be sworn 
before they testify. Please rise and raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witnesses respond in the affirmative.]
    Mr. Jordan. Let the record show everyone answered in the 
affirmative. We will start with Mr. Graham.
    Mr. Graham, you are recognized for five minutes. You know 
how the light system works. Make sure microphone is on and fire 
away.

                  STATEMENT OF JOHN R. GRAHAM

    Mr. Graham. Thank you, Chairman Jordan, Ranking Member 
Cartwright and members of the committee.
    My name is John R. Graham, Senior Fellow at the National 
Center for Policy Analysis, a nonprofit, nonpartisan, public 
policy research organization. I welcome the opportunity to 
share my views and look forward to your questions.
    Despite the President's assurance that if you like your 
health plan, you can keep your health plan, Obamacare has 
caused significant disruption to peoples' coverage. As the 
health insurance exchanges prepared for their first open 
enrollment, which began last October, insurers knew that they 
would struggle to price policies in the exchanges accurately.
    Obamacare includes three mechanisms to backstop insurers' 
risk: risk adjustment, reinsurance and risk corridors. I will 
focus on the last two. These last two, reinsurance and risk 
corridors, are politically motivated tools that are critical to 
insurers' ability to profit in the exchanges through the end of 
2016. Both persist only through the first three years of 
Obamacare.
    The first is reinsurance. Each year, Obamacare levies a 
special premium tax on all insurers, as well as self insured 
plans. This tax revenue is supplemented by a little extra from 
the general revenues to add up to a total of $25 billion over 
the three year period.
    For each of the three years, the U.S. Department of Health 
and Human Services must publish a notice explaining how it will 
distribute this money to insurers. In March 2013, HHS issued 
its first notice. My written testimony goes through the 
arithmetic which concludes that the maximum payout per expense 
of policyholder would have been $150 to $1,000.
    However, at the end of 2013, HHS changed that rule, 
increasing the maximum payout to $164,000 by changing the 
attachment point. HHS asserts that it changed the attachment 
point because there would be fewer extraordinarily expensive 
claims than originally anticipated. This is a remarkable claim.
    Evidence suggests that the exchanges are attracting older 
and sicker applicants than originally anticipated. For example, 
Express Scripts, the country's largest provider of pharmacy 
benefits has released an analysis of medication utilization in 
the exchanges.
    ``Increased volume for higher cost specialty drugs can have 
a significant impact on the cost burdens. Specialty medications 
now account for more than a quarter of the country's total 
pharmacy spend and total spend six of the top ten costliest 
medications used by exchange enrollees have been specialty 
drugs.
    ``In commercial plans, only four of the top ten costliest 
medications were specialty. More than 6 in every l,000 
prescriptions in the exchange plans were for medication to 
treat HIV. This proportion is nearly four times higher in 
exchange plans than in commercial health plans.''
    Further, the exchanges need so-called young invincibles who 
are between the ages of 18-34. However, these comprise only 28 
percent of enrollees in Obamacare plans, almost one-third fewer 
than the 40 percent previously expected.
    Even worse, our understanding of the characteristics of the 
beneficiaries in the exchanges is deteriorating because HHS 
appears to have decided to discontinue its monthly 
announcements that describe these important factors.
    The Reinsurance Fund is primarily financed by a tax levied 
on unassumed approximately 191 million insured people in the 
United States. If 2014 sees significantly fewer insured people, 
then assumed revenues will fall short. It is likely the 
Reinsurance Fund will fall short of satisfying insurers' claims 
and they will look elsewhere to be made whole which brings us 
to the risk corridors.
    This is an unlimited taxpayer obligation that compensates 
insurers and the exchanges according to the formula I describe 
in my written testimony. A quick read of this corridor suggests 
they are revenue neutral, but this is not the case. Payments 
are based on premiums paid, not claims incurred.
    At the risk of over simplification, if the premium of all 
insurers is $10,000 and the average of all claims is $10,000, 
the risk corridor is revenue neutral, but if the average of all 
claims is greater than that, taxpayers are on the hook for the 
difference.
    Health insurers appear to understand that the exchanges 
contain more risk than initially appreciated and HHS has 
responded to their concerns in a series of communications that 
have promised in somewhat veiled language that it will adjust 
the risk corridors, quoting from a letter, ``modify the Risk 
Corridor Program final rules to provide additional 
assistance.''
    Also, the HHS has increased the administrative costs that 
it will compensate plans for if they incur too many claims in 
the risk corridors.
    In its most recent communication, the HHS appears to have 
accepted the need for appropriations as the Congressional 
Research Service has suggested and I would conclude by 
encouraging Congress to use whatever tools and powers available 
to it to ensure the taxpayer liabilities in these risk 
corridors are limited and precisely quantified.
    Thank you.
    [Prepared statement of Mr. Graham follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.003
    
    [GRAPHIC] [TIFF OMITTED] 88826.004
    
    [GRAPHIC] [TIFF OMITTED] 88826.005
    
    [GRAPHIC] [TIFF OMITTED] 88826.006
    
    [GRAPHIC] [TIFF OMITTED] 88826.007
    
    [GRAPHIC] [TIFF OMITTED] 88826.008
    
    Mr. Jordan. Thank you, Mr. Graham.
    Mr. Chandler?

                 STATEMENT OF SETH J. CHANDLER

    Mr. Chandler. I am Seth Chandler, Professor of Law, 
University of Houston. My credentials are set forth in my 
written testimony.
    I live with and am friends with many people whose politics 
probably align better with those of the House Minority. I 
suspect I don't need to work as hard today to persuade members 
of the Majority as to the merits of my written testimony. Let 
me see if I can articulate what I have said in a way that 
aligns with some shared values and that speak to a broad 
segment of my friends.
    All of you ought to be very concerned about the way risk 
corridors is being implemented. First, about the Obama 
Administration's sabotage of its own delicate mechanisms for 
adverse selection containment by what it calls a transitional 
policy by violating the law you passed and permitting insurers 
in many States to sell policies that fail to provide essential 
health benefits and that otherwise violate the ACA.
    That action increased the cost of risk corridors 
substantially, even as it challenged separation of powers.
    Second, you ought to be concerned about the revisions this 
spring to 45 C.F.R. Section 153.500, a decision to fiddle with 
the risk corridors formula it had earlier written not in a way 
that has anything to do with a reappraisal of real costs, but 
as just about taking care of everybody's friend, big insurers.
    Having started down the road of tampering with the delicate 
balance contained in the ACA, for which some of you in here 
voted, the Obama Administration, instead of backing off, has to 
keep scrambling to go beyond the statute or normal precepts of 
administrative law in order to keep propping it up, this time 
at the taxpayers' expense.
    When you let precedents like this stand, when you say it is 
all for the greater good or for temporary political advantage, 
before you complain again that this is all some tiresome 
political stunt, think about what happens when the future Cruz 
Administration or some other Executive Branch leader not to 
your taste, has the same sort of powers over the purse and over 
the law that this Executive Branch is claiming.
    Finally, you ought to be concerned about the state of your 
own House. In my written testimony, I go through the bizarre 
history of the Congressional Budget Office's accounting for 
risk corridors. I have studied it with every tool I have and I 
cannot make mathematical sense of what they did in February or 
their about face in April.
    The latter time was the worst. The CBO simply capitulated 
to the assertion of the Executive Branch that it would balance 
risk corridor books by paying off any deficiencies in one 
year's risk corridor bill with proceeds from what it hoped 
would be the following year's surplus.
    CMS admitted in its April 11 fact sheet not having an 
answer to the obvious question of what happens when it has 
borrowed so much against future receipts that there is not 
enough money to pay off in year three. Scoring risk corridors 
as budget neutral, CBO simply capitulated to this vacuous 
response that relied on vapor dollars and an unlawful 
withholding of money to the insurance industry to balance the 
books.
    It should have and it could have done much better. If you 
want to enact interventionist, complex, delicate laws, okay. I 
understand that. Perhaps that is sometimes what it takes. If 
you are going to go down that path, you must have independent 
and technically adept information on the benefits and costs of 
doing so.
    No matter the minor transitory benefits today of looking 
the other way, when congressional majorities come and go, you 
ought to be very concerned about a precedent in which at least 
the appearance of politics starts to infect the CBO.
    What I want to do in the 52 seconds remaining is to go 
where the CBO feared to tread. I want to estimate for you the 
real cost of risk corridors before the transitional policy, 
after the transitional policy and after the CMS fiddled with 
the computation of the risk corridors ratio. I am going to do 
so using the same software that underlies my written testimony.
    What you see in the blue line is what risk corridors would 
have cost the Federal Government under various levels of 
profitability for the insurance industry. More profitable is to 
the left; less profitable is to the right.
    The orange line is what happens--at least a decent scenario 
of what happens after the transitional policy is enacted. You 
can see that for all levels of insurer profitability, the cost 
of risk corridors goes up.
    The green line is the add-on created by the fiddling with 
153.500 and adding what are in effect phantom costs to risk 
corridors.
    You can see the bill increasing. I would add this estimate 
is roughly in conformity to what the committee investigation 
found in its speaking to insurance companies.
    I see my red light is more than on, so I will quit. Thank 
you.
    [Prepared statement of Mr. Chandler follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.009
    
    [GRAPHIC] [TIFF OMITTED] 88826.010
    
    [GRAPHIC] [TIFF OMITTED] 88826.011
    
    [GRAPHIC] [TIFF OMITTED] 88826.012
    
    [GRAPHIC] [TIFF OMITTED] 88826.013
    
    [GRAPHIC] [TIFF OMITTED] 88826.014
    
    [GRAPHIC] [TIFF OMITTED] 88826.015
    
    [GRAPHIC] [TIFF OMITTED] 88826.016
    
    [GRAPHIC] [TIFF OMITTED] 88826.017
    
    [GRAPHIC] [TIFF OMITTED] 88826.018
    
    [GRAPHIC] [TIFF OMITTED] 88826.019
    
    [GRAPHIC] [TIFF OMITTED] 88826.020
    
    [GRAPHIC] [TIFF OMITTED] 88826.021
    
    [GRAPHIC] [TIFF OMITTED] 88826.022
    
    [GRAPHIC] [TIFF OMITTED] 88826.023
    
    [GRAPHIC] [TIFF OMITTED] 88826.024
    
    [GRAPHIC] [TIFF OMITTED] 88826.025
    
    [GRAPHIC] [TIFF OMITTED] 88826.026
    
    [GRAPHIC] [TIFF OMITTED] 88826.027
    
    [GRAPHIC] [TIFF OMITTED] 88826.028
    
    [GRAPHIC] [TIFF OMITTED] 88826.029
    
    [GRAPHIC] [TIFF OMITTED] 88826.030
    
    [GRAPHIC] [TIFF OMITTED] 88826.031
    
    Mr. Jordan. Thank you, Mr. Chandler. Well done.
    Ms. Uccello.

                  STATEMENT OF CORI E. UCCELLO

    Ms. Uccello. That is a tough act to follow.
    Good morning, Chairman Jordan, Ranking Member Cartwright 
and members of the subcommittee.
    I am Cori Uccello, Senior Health Fellow, American Academy 
of Actuaries, which is the non-partisan public policy and 
professionalism association for actuaries in the U.S. Thank you 
for inviting me to speak today.
    Millions of Americans have obtained health insurance under 
the Affordable Care Act. However, the law poses some financial 
risks for insurers which could limit competition and plan 
choice.
    To address these risks, the ACA includes three risk sharing 
programs: risk adjustment, reinsurance and risk corridors. My 
remarks will provide a framework for understanding these 
programs. Taken together, they encourage plan choice and 
competition and reduce the incentives for insurers to avoid 
high cost enrollees.
    I will first discuss the permanent Risk Adjustment Program. 
Requiring insurers to accept all applicants, regardless of 
preexisting conditions, and prohibiting premium variations 
based on health status exposes insurers to adverse selection 
risk which occurs when individuals who anticipate high health 
care needs are more likely to purchase coverage than those who 
anticipate lower needs.
    The ACA's individual mandate and premium subsidies reduce 
the adverse selection effect in the market, although some risk 
remains. Such adverse selection risk could encourage insurers 
to avoid enrolling people with high health costs.
    The Risk Adjustment Program aims to reduce these incentives 
by shifting money among insurers based on their enrollee risk 
profiles. Insurers with larger shares of low cost enrollees 
will contribute to a fund that will make payments to insurers 
with larger shares of high cost enrollees.
    All ACA compliant plans in the individual and small group 
market will participate in the Risk Adjustment Program, whether 
they are inside or outside of the exchanges. The program is 
designed to be budget neutral.
    Next, I will turn to the Reinsurance Program. From 2014-
2016, the ACA includes a transitional Reinsurance Program which 
further reduces the incentives for plans to avoid high cost 
individuals and help stabilize premiums.
    The Reinsurance Program will offset a portion of the cost 
of high cost enrollees in the individual market. This will 
reduce the risk to insurers, allowing them to offer premiums 
lower than they otherwise would be.
    In 2014, $10 billion will be collected from health plans, 
which will then we used to pay plans in the individual market 
for a portion of an individual's claims exceeding $45,000. The 
program is budget neutral. If necessary, reinsurance payments 
will be adjusted to ensure that payments do not exceed 
contributions collected from plans.
    Contributions to and reimbursements from the program will 
decline over the program's three years. The transitional nature 
was designed to address the likelihood that the earliest 
enrollees would be those with higher costs, including those 
transitioning from high risk pools whereas healthier 
individuals may delay enrolling.
    The third program is the Temporary Risk Corridor Program 
effective from 2014-2016 for qualified health plans in the 
individual and small group markets. The ACA risk corridor is 
similar in concept to that in Medicare Part D.
    Risk corridors mitigate the pricing risk that insurers face 
when they have only limited data to estimate the health 
spending of the newly insured. An objective of risk corridors 
is to encourage health plan choice and competition by limiting 
the risk for insurers participating in the market during its 
early years.
    The ACA Program includes two-sided risk corridors which 
limit not only insurer losses but also insurer gains. Actual 
claims are compared to the expected claims that were assumed in 
the insurer's premiums.
    If actual claims are within three percent of expected, 
insurers either keep the gains or bear the losses. A portion of 
losses exceeding three percent are reimbursed by the Federal 
Government. A portion of gains exceeding three percent are paid 
to the Federal Government.
    Insurers do not have full protection against losses. They 
bear a share of the risk even if losses exceed the thresholds. 
Such a design encourages insurers to set premiums so that they 
are adequate to pay claims.
    In closing, I want to highlight the importance of these 
programs. The Risk Adjustment and Reinsurance Programs reduce 
the incentives for insurers to avoid high cost enrollees. By 
limiting insurer losses due to pricing uncertainty, risk 
corridors encourage insurer participation in the market which 
in turn increases competition and plan choice for consumers.
    Because the risk corridors are two-sided, the Federal 
Government will receive payments from insurers if their gains 
exceed the threshold.
    Thank you. I look forward to your questions.
    [Prepared statement of Ms. Uccello follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.032
    
    [GRAPHIC] [TIFF OMITTED] 88826.033
    
    [GRAPHIC] [TIFF OMITTED] 88826.034
    
    [GRAPHIC] [TIFF OMITTED] 88826.035
    
    Mr. Jordan. Thank you.
    Mr. Haislmaier.

               STATEMENT OF EDMUND F. HAISLMAIER

    Mr. Haislmaier. Mr. Chairman, Ranking Member Cartwright and 
members of the committee, thank you for inviting me to testify 
today.
    My name is Ed Haislmaier, Senior Research Fellow in Health 
Policy Studies at the Heritage Foundation.
    As I am sure you already aware, this is a complicated and 
sometimes an opaque topic. I would hope to maybe put it into a 
perspective that you could use in evaluating it.
    The perspective I suggest is to approach this from the same 
perspective that a mechanic would approach trying to fix 
something. That is, what is the problem, given the problem, 
what is the right tool? Do I use a screwdriver, a pair of 
pliers, a wrench or a hammer?
    In the case of risk in insurance, there are all different 
types of risk. Let me briefly describe what I see as the three 
types of risk being addressed by these three risk mitigating 
strategies. I think that might give us a way to evaluate the 
programs separately.
    The first is what could be called a market selection risk. 
There are many changes that this law makes to existing markets 
and it is very uncertain how people will sort themselves out 
when they respond to those changes with respect to people who 
already have insurance, including those with employer group 
coverage who may continue it or may not, with respect to the 
uninsured, et cetera.
    When people have choices of markets, it is oftentimes 
difficult to predict who is going to wind up where. The 
underlying assumption--I think it is a valid assumption--behind 
the Reinsurance Program is that there will be a shift due to 
market selection of less healthy individuals towards the 
individual market, particularly through the exchanges.
    Therefore, the Reinsurance Program, based on that premise, 
essentially taxes the other 90 percent of the market to 
subsidize that 10 percent of the market on the expectation that 
there will be more people of lower risk moving into that 
smaller individual subset. That is a market selection risk, 
which markets are people going to wind up in, individual, 
employer groups, self insured, uninsured, that is the 
uncertainty.
    The second uncertainty is sort of a wholesale risk is the 
retail level, the individual selection risk. Even if you take a 
pool of people, all of whom are committed to buying insurance, 
we don't know who is going to pick which insurer and which 
plan. There are many different factors that will go into their 
decision, something as simple as brand name. Maybe they will 
pick Blue Cross because they know it as opposed to an insurer 
they don't know.
    In that market, the concern is--this is true of any 
market--that the insurers may not get a statistically even 
distribution of all the risk profiles. The Risk Adjustment 
Program is there really for the insurers to sort out among 
themselves that market selection risk.
    That brings me to the third and most contentious and this 
is the risk corridors. Essentially, the Risk Corridor Program 
functions as a profit or loss risk mitigation. Will the 
insurers be profitable or not in this market?
    This is where I think it is very important to consider what 
is and isn't applicable about the often mentioned experience 
with Medicare Part D. Medicare Part D was an entirely new 
product design in an entirely new market. The insurers were 
being asked to do something they had never done before.
    They had never offered standalone drug coverage to senior 
citizens. Furthermore, the closest they could get in 
approximating that wasn't really very good which was employer 
group drug coverage but it was not really the equivalent.
    It was sold on a group basis, on an individual basis, so 
there was less risk there. It was integrated with the plans, 
not standalone. That made it very different. Also, it was sold 
to a population that used only one-fifth as many drugs as the 
senior citizens do. It was a very difficult market for the 
insurers to try to figure out.
    In comparison, the market that we have created in the 
individual market, yes, does make changes, does elevate risks 
for carriers but it is not an entirely new market. I detail in 
my testimony where insurers could get experience they can go 
on.
    Finally, I think any argument in favor of the Risk Corridor 
Program is really undercut by the very design because 
everything that you could say about why the exchange market is 
riskier, also applies to the individual market outside the 
exchange which, in fact, was recognized in the Reinsurance 
Program that applies to both in and outside exchange.
    In this case, in the Risk Corridor Program, it only applies 
inside the exchange. I think that really undercuts it because 
the risk would be the same inside and outside.
    I would finally note that I think there is enough money in 
the system already. As I said in my testimony, there is about 
$28 billion in the individual premiums in the market today, 
absolute outer bounds, upper estimates I come up with would be 
an additional $35 billion of premium in an expanded market.
    When you compare that to the $10 billion available in 
reinsurance funding this year, the insurers could be off by as 
much as 28 percent in their premiums and you could still make 
them whole through reinsurance.
    In conclusion, I think for this and for a number of other 
reasons mentioned by others about the legal questions, it might 
be best for Congress to simply scrap the program.
    Thank you, Mr. Chairman.
    [Prepared statement of Mr. Haislmaier follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.036
    
    [GRAPHIC] [TIFF OMITTED] 88826.037
    
    [GRAPHIC] [TIFF OMITTED] 88826.038
    
    [GRAPHIC] [TIFF OMITTED] 88826.039
    
    [GRAPHIC] [TIFF OMITTED] 88826.040
    
    Mr. Jordan. Thank you, Mr. Haislmaier.
    Mr. Chandler, in February of this year, the CBO estimated 
the risk corridor provision would produce $8 billion for the 
government. ``The CBO projects the government's risk corridor 
payments will be $8 billion over three years and that its 
collections will be $16 billion over that same time period.'' 
Do you agree with that statement?
    Mr. Chandler. No, I do not agree with that.
    Mr. Jordan. You do not agree with that. At the time, did 
you disagree with that statement as well?
    Mr. Chandler. Yes, I did. I disagreed at the time.
    Mr. Jordan. Your research says there is going to be a cost, 
correct?
    Mr. Chandler. My research says that it is most likely that 
there will be a cost.
    Mr. Jordan. In April of this year when CBO revised their 
estimates and said, no, no, it is not going to result in $8 
billion windfall for the taxpayers; it is going to be a budget 
neutral break even proposition, do you disagree with that 
statement as well?
    Mr. Chandler. Yes, I do. I think it is unlikely to be a 
break even proposition, nor do I see what happened between 
February and April that would warrant an $8 billion change in 
the estimate.
    Mr. Jordan. The staff on this committee actually contacted 
the people who participated in the program. Imagine that. We 
went to the insurance companies and the co-ops who participated 
in the program and asked them what they expect. Guess what they 
told us. They expect to get paid by the taxpayers to the tune 
of ``approaching $1 billion.''
    The actual participants and what they expect the people who 
are operating in this arena with this law, they are actually 
supporting your research. What do you think it is going to cost 
the taxpayer in the end?
    Mr. Chandler. It depends on a number of factors.
    Mr. Jordan. You do believe it is going to cost the 
taxpayer?
    Mr. Chandler. I believe it is very likely to cost the 
taxpayer.
    Mr. Jordan. This is the point I want to stress. That is 
consistent with the insurance companies and the costs 
participating in the program?
    Mr. Chandler. That is correct as I understand what your 
committee has found.
    Mr. Jordan. Now you can elaborate.
    Mr. Chandler. It depends on a number of factors. It depends 
on how many people enroll in the exchanges.
    Mr. Jordan. They quit telling us how many are in there. 
They quit telling us that a few months ago.
    Mr. Chandler. It depends on how insurers price their 
policies going forward. It depends on exactly how the 
transitional policy that lets people buy policies outside the 
exchange persists. That being said, I think it is most likely 
that the Risk Corridors Program will cost somebody--because I 
am not sure where the money comes from--it will cost somebody 
in the end.
    Mr. Jordan. It all comes from the taxpayers, Mr. Chandler.
    Mr. Chandler. That would be my best guess. If Senator 
Sessions is correct that there is no constitutional authority 
to spend that money, I don't know what will happen.
    Mr. Jordan. That is another problem. That is the whole 
constitutional concern and we will get to that sometime this 
morning in our hearing as well.
    Mr. Graham, let me run you through the same thing. Did you 
agree with the February assessment from CBO?
    Mr. Graham. I did not. I did not have the skill. I didn't 
do the analysis. I was quite skeptical of it and then so soon 
to change it. The estimate is moving in the wrong direction.
    Mr. Jordan. Exactly the trend line is not where we want to 
be.
    Mr. Haislmaier, did you agree with the February assessment?
    Mr. Haislmaier. I did not look at it as closely as Mr. 
Chandler, but my reaction was that I thought CBO had 
essentially cribbed off what they had come up with on Medicare 
Part D and just plugged it in there. Frankly, to be fair to 
CBO, you guys ask them to do a lot of stuff very quickly. I 
have seen this behavior before, to just sort of take what is on 
the shelf.
    I did not put a lot of weight on their estimate one way or 
another or on their revision, frankly.
    Mr. Jordan. Ms. Uccello, what did you think if CBO's 
February and then two months later, their revision to the risk 
corridor provision?
    Ms. Uccello. I did not have a particular reaction one way 
or another on the February numbers. I think those were 
reflecting some of the experience with Part D which I think 
factored into the CBO's numbers.
    I cannot speak for CBO but my understanding was that the 
April numbers were produced and revised based on some 
information from CMS that stated they were going to implement 
the risk corridors in a budget neutral way. That is how I read 
their April estimate.
    Mr. Jordan. Here is how I see it as I indicated to Mr. 
Chandler. First, we say $8 billion pro taxpayer, two months 
later, we say no, break even. Now that we have talked to the 
people actually involved, they said it is going to cost the 
taxpayer.
    As Mr. Graham indicated, the trend line is in a direction 
that is not real good looking for the taxpayers. Do you agree 
with that trend line that we see?
    Ms. Uccello. I think it is too early to say. There is still 
so much uncertainty about this. I think the complicating factor 
is that not just the transition rule and the changes that were 
made because of that and how that all else equal would have 
increased the likelihood of risk corridor payments being made, 
but at the same time, when they are implementing this, they 
lower the attachment point for the Reinsurance Program and that 
could have reduced the likelihood of risk corridor payments 
being made. There are a lot of factors that we need to 
integrate.
    Mr. Jordan. I have five seconds left.
    Mr. Chandler, do you think the liability for taxpayers is 
in the millions of dollars or potentially in the billions of 
dollars?
    Mr. Chandler. I think they are most likely in the billions 
of dollars.
    Mr. Jordan. With that, I will yield to the gentleman from 
Pennsylvania, the Ranking Member.
    Mr. Cartwright. Thank you, Mr. Chairman.
    What I find most troubling about labeling the ACA's risk 
management programs as a bailout to insurers is that these same 
three mechanisms have been in use in Medicare Part D for the 
past nine years as several of you mentioned.
    Let us not forget that Medicare Part D was signed into law 
under the George W. Bush Administration, supported by Senators 
Sessions, McConnell and others, Speaker Boehner, Majority 
Leader Cantor, Budget Chairman Ryan and the chairman of our 
full committee, Chairman Issa, all voted in favor of that bill, 
Medicare Part D.
    Ms. Uccello, thank you for coming here and explaining your 
world, the world of actuary science, to us mere mortals.
    You mentioned the word uncertainty and that is a word you 
deal with as part of your profession, isn't it. You said that 
it is too soon to be casting these opinions and statements 
about this program because we don't have enough experience with 
it yet. You said there was too much uncertainty for us to make 
these conclusions.
    Ms. Uccello, can you explain why insurers face uncertainty 
in new programs like Medicare Part D and the ACA and how these 
risk management programs we are here talking about operate to 
reduce the uncertainty?
    Ms. Uccello. As I mentioned, in Part D, there was that 
uncertainty regarding new coverage for a new population and a 
lot of those same uncertainties exist under the ACA. There is 
uncertainty regarding who will purchase coverage and what their 
health spending will be. That creates a lot of pricing 
uncertainty for insurers when they are determining their 
premiums.
    There is also the issue of whether or not a particular plan 
is going to get a disproportionate share of high cost people 
relative to the market as a whole.
    Mr. Cartwright. Mr. Haislmaier, you stated in both your 
written and oral testimonies, that you believe insurers in the 
individual market face less pricing uncertainty than the Part D 
plans faced at the outset of the Part D program. You explained 
that was because we had no experience in Medicare Part D, 
whereas with health insurance under the ACA, there is a lot 
more data to give us guidance. Am I correct in that?
    Mr. Haislmaier. Yes, sir, that is exactly the point I was 
making.
    Mr. Cartwright. Ms. Uccello, I want to ask, do you agree 
with that?
    Ms. Occello. I think there is just as much if not more 
uncertainty with the ACA premiums as there was for Part D in 
part because the variability of Medicare medical spending is a 
lot higher than that for prescription drug spending so that can 
increase the uncertainty.
    Mr. Cartwright. Do I go too far then to say, Ms. Uccello, 
that in your opinion, the need for risk corridor programs is 
even greater than with the Medicare Part D program?
    Ms. Uccello. I would say that it is just as much, if not 
greater.
    Mr. Cartwright. How did reinsurance, risk management and 
risk corridors impact the participation of insurers and the 
cost of premiums in Medicare Part D, Ms. Uccello?
    Ms. Uccello. I think we have to look back and recall the 
environment when Part D was first created. There was a lot of 
concern that insurers would not participate in the market. 
There was even a fallback provision in there if plans did not 
participate in certain markets.
    What we are actually seeing now is that consumers have a 
wide array of Part D plan choices. I think that does not prove 
but it suggests that the risk corridors were successful in 
encouraging plan participation. In terms of reinsurance, those 
did help lower the premiums.
    Mr. Cartwright. Do the ACA's risk mitigation programs work 
the same way to increase participation by insurers and 
stabilize the cost of premiums?
    Ms. Uccello. Yes. The Risk Corridor Program's primary goal 
is to mitigate the pricing uncertainty to encourage plan 
participation.
    Mr. Cartwright. Why is that important to encourage more 
insurers to participate in the exchanges?
    Ms. Uccello. If you have more competition, you have more 
choice among consumers and more competition could also mean 
more competing on price and quality of insurance as opposed to 
risk selection.
    Mr. Cartwright. Thank you.
    I yield back.
    Mr. DeSantis. [presiding] The gentleman's time has expired.
    The Chair now recognizes himself for a period of five 
minutes.
    Mr. Graham, with respect to the Risk Corridor Program, if 
insurers systematically set their prices too low, is it correct 
that basically the taxpayer is on the hook for that mispricing?
    Mr. Graham. Yes.
    Mr. DeSantis. As Chairman Jordan mentioned, our committee 
asked the 15 largest insurers in the country about what they 
expected in terms of taxpayer payments and 13 insurers expected 
they would get paid out of the program. Knowing how this is 
structured, is that something that came as a surprise to you?
    Mr. Graham. The specific numbers came as a surprise to be 
but not really because I think those of us who examined it know 
when it was promoted by the Administration as budget neutral, 
that was not a likely reality as it happens.
    Mr. DeSantis. The taxpayer is implicated by this program. 
Mr. Graham, is it correct that this reinsurance provision is 
financed by a fee or tax, however you want to term it, on all 
health insurance plans?
    Mr. Graham. Of the $25 billion, $20 billion is the premium 
tax and $5 billion is general revenue.
    Mr. DeSantis. Basically, you have the vast majority of 
individuals with health insurance are paying higher premiums to 
finance the Obamacare Reinsurance Program, correct?
    Mr. Graham. Yes, sir.
    Mr. DeSantis. Essentially, the Reinsurance Fund is a 
transfer from those Americans to a very smaller subsection of 
Americans who have Obamacare plans?
    Mr. Graham. Yes, sir.
    Mr. DeSantis. You mentioned in your testimony that higher 
than expected reinsurance claims indirectly affect taxpayer 
exposure to risk corridor bailouts. Can you discuss what you 
meant by that?
    Mr. Graham. I am thinking it is clear from the 
communications between the Administration and the insurers that 
the insurers really are looking to the risk corridors and as 
your research tells us, 13 out of 15 are expecting a payout.
    If they run out of the money in the reinsurance plan, the 
more incentive is for the insurers to focus on the risk 
corridors and make sure they up their money coming out of that 
through various communications and relationships with the 
Administration.
    Mr. DeSantis. Mr. Chandler, the Risk Corridor Program, how 
does that impact health insurance pricing? Can you explain that 
for us?
    Mr. Chandler. In theory, it might slightly lower health 
insurance pricing because insurers are basically getting what 
one might call a derivative security issued by the government 
that hedges their risk.
    Mr. DeSantis. What do you think will happen to insurance 
premiums after 2016, following my train of thought, if both the 
risk corridor and the reinsurance provisions are no longer in 
effect?
    Mr. Chandler. On the reinsurance provisions, I want to 
separate those. On the reinsurance provision, there is no 
question in my mind that insurance premiums will go up in the 
exchanges and, in fact, we should see an effect as early as 
this coming year because the size of the reinsurance goes down 
as we move through time.
    For risk corridors, one would expect to see a modest 
increase in insurance prices because insurers who want to hedge 
that risk are going to have to go to the market rather than 
having the government issue a derivative security for them.
    Mr. DeSantis. You mentioned in your opening statement the 
Administration's transitional policy in November and the 
background for those who do not know, the famous promise that 
if you like your plan, you can keep it, is probably going to 
rank alongside read my lips, no new taxes and the Lewinsky 
promise.
    That really shocked Washington. People were losing their 
plans. Congress was going to act to basically grandfather these 
in. The Administration decided--is this how you understand it--
the law has not changed. The law says Obamacare plans, it sets 
out what needs to happen and they have administratively 
relieved States of having to comply with that.
    You actually have insurance policies being issued, which a 
State like Florida runs from, which are illegal under the law 
but are simply not being enforced. Is that the way it is 
working?
    Mr. Chandler. In one word, yes.
    Mr. DeSantis. In your judgment, knowing the problem that 
came in November, knowing that people were losing their plans, 
that had to be addressed legislatively by Congress in terms of 
the way our separation of powers system operates, correct?
    Mr. Chandler. Yes.
    Mr. DeSantis. Very good. I have no further questions.
    The Chair will now recognize the gentleman from Virginia, 
Mr. Connolly, for five minutes.
    Mr. Connolly. I thank the Chair, although I would be happy 
to yield to the distinguished Ranking Member if he wishes to go 
first.
    Mr. Cummings. Thank you very much.
    Ms. Uccello, you described the state of the individual 
market prior to the establishment of the Reinsurance Program. 
What kinds of medical underwriting practices were common place 
in the individual market?
    Ms. Uccello. Prior to 2014 in the individual market, in 
most States, insurers were allowed to underwrite, they were 
allowed to deny coverage to applicants with preexisting 
conditions, they were allowed to charge higher premiums to 
individuals with preexisting conditions or they were allowed to 
exclude preexisting conditions from coverage. The ACA now 
prohibits those activities.
    Mr. Cummings. They were allowed to charge people higher 
premiums for preexisting medical conditions, is that correct?
    Ms. Uccello. That is correct.
    Mr. Cummings. What about women? Were insurers allowed to 
charge women more for coverage than men?
    Ms. Uccello. Premiums were allowed to vary by gender.
    Mr. Cummings. I know from the title of this hearing, my 
counterparts on the committee believe that Obamacare ``fails 
patients'' but to me it is clear that the system that existed 
prior to the Affordable Care Act is one that failed patients.
    Ms. Uccello, can you describe the market reforms the ACA 
made to the individual market?
    Ms. Uccello. Under the ACA, there is guaranteed issue which 
means that consumers who apply for coverage cannot be denied. 
There are also limits on how much premiums can vary across 
people. They can vary by a limited range by age. They can vary 
by geographic location, smoking status and family size, but 
they cannot vary by health status.
    Mr. Cummings. Again, they can no longer decline to offer 
coverage to individuals, is that right? Is that what you are 
saying?
    Ms. Uccello. That is correct.
    Mr. Cummings. They cannot charge people higher premiums for 
preexisting conditions. By the way, I am talking about our 
constituents.
    Ms. Uccello. Correct.
    Mr. Cummings. I want to underscore the importance of these 
reforms for the millions of our constituents living with 
preexisting conditions. For them, health insurance may be a 
matter of life or death.
    I also think it is important to emphasize that this 
represents a fundamental change in how insurers do business. 
Instead of competing to avoid the sickest or costliest 
enrollees, insurers must shift their focus to competing on the 
basis of quality of care they deliver and how efficiently they 
deliver it.
    Ms. Uccello, how do the three R's help insurers bridge the 
transition from a medically underwritten individual market to 
one in which everyone is guaranteed coverage and cannot be 
charged more due to preexisting medical conditions and why are 
they important?
    Ms. Uccello. Because of the guaranteed issue and 
prohibitions on varying premiums based on health status, there 
could be an incentive for insurers to avoid some of these high 
cost people. The reinsurance and the risk adjustment programs 
reduce those incentives.
    The Risk Adjustment Program shifts money, transfers money 
between plans based on what the risk profile looks like. Those 
insurers who enroll a less healthy population, presumably their 
costs are going to be higher, they will be getting some money 
from those plans that enroll a lower cost population.
    Those programs just transfer money between insurers based 
on average market risk. They don't really help if the market, 
as a whole, experiences adverse selection or there is more 
uncertainty in pricing in the market as a whole. That is where 
the risk corridors come in to mitigate that pricing 
uncertainty.
    Mr. Cummings. Do these programs also play a critical role 
in discouraging insurance companies from cherry picking the 
healthiest enrollees and competing on the basis of quality and 
efficiency rather than risk selection? That is one question. My 
time is running out.
    How do these programs help insurers provide affordable 
coverage to sicker individuals with preexisting conditions? 
Finally, do you believe these programs constitute a taxpayer 
bailout to insurance companies?
    Ms. Uccello. The Risk Adjustment Program and the 
Reinsurance Program do get at the issue of avoiding high cost 
people. The Risk Corridor Program, by reducing that price 
uncertainty, can encourage more competition which could lead to 
higher consumer value.
    Mr. Cummings. Is it a bailout of the insurance companies?
    Ms. Uccello. The mechanisms are risk sharing programs.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. Jordan. [presiding] Risk sharing programs of taxpayer 
money.
    The gentleman from North Carolina is recognized, Mr. 
Meadows.
    Mr. Meadows. Thank you, Mr. Chairman.
    I thank each of you for your testimony.
    I want to go a little bit further into this because anytime 
that you guarantee against losses, there is a cost assumed with 
that. It also manipulates markets, which is very concerning to 
me.
    All of you have said that right now there is a greater 
tendency for unhealthy or those who have not had health 
insurance to enroll now, is that correct?
    Ms. Uccello. I think that earlier on, it is more likely 
that the higher cost people but as time goes on, I think the 
healthier people will come in.
    Mr. Meadows. As time goes on, the healthier will do that. 
What would preclude an insurance company today from keeping 
their premium a little higher than their competition in order 
to make sure their market mix is healthier right now or vice 
versa, lowering that to make sure they can increase their 
market share, i.e., setting their premium at a lower rate to 
compete with Blue Cross and Blue Shield.
    What would stop them from doing that if their losses are 
mitigated?
    Mr. Chandler. Can I answer that?
    Mr. Meadows. Sure.
    Mr. Chandler. I think you have hit on a key point which is 
that by backstopping the losses, there is somewhat of an 
incentive for insurers to underprice, get the business, if 
things go badly, risk corridors bails them out and if things go 
okay, well, great.
    It is not 100 percent guaranteed because risk corridors is 
not a 100 percent back stop but it shifts the incentives in a 
subtle way to cause insurers to have a greater likelihood of 
risking a low price, bringing people into their network and 
seeing what happens.
    Mr. Meadows. As I sit here listening to you, I would say if 
I were getting into the insurance business right now and 
competing against a big boy, that is what I would do. I would 
keep it close but I would make sure when they go on 
healthcare.gov that my premium was slightly lower.
    Based on that premise, would you all agree there is 
potential for that?
    Mr. Chandler. Yes, I would. Let me say I read in the news 
this morning, I haven't checked the actual source, that if you 
look at consumer behavior, they are seeking out either the 
first lowest or the second lowest price policy in the exchange.
    I understand perfectly well why consumers would do that but 
that exacerbates the possibility that it will be those insurers 
who are under-pricing who get the business and that will 
necessitate the sort of risk corridors payments in the end.
    I suspect that is why we are getting the response that the 
Chairman referred to of 13 out of 15 insurers they polled 
saying we expect to get money out of risk corridors. Nobody 
expects to pay in.
    Mr. Meadows. If that is the case, then is it fair to make 
the assumption that the rates that many people are paying today 
are artificially lower than what they may be after the risk 
corridors run their course?
    Mr. Chandler. Yes and that is why I said I thought risk 
corridor disappearance would have an effect on pricing. I do 
not think it is as great as an effect as the elimination of 
transitional reinsurance. That is a pure subsidy that runs from 
a whole variety of health care plans to plans sold in the 
exchange. It is probably on the order, depending on the policy, 
of $500 to $600 per policy.
    Mr. Meadows. As we see this, how can we make sure that this 
is revenue neutral?
    Mr. Chandler. The Administration is saying it is revenue-
neutral, CBO says it is revenue-neutral. I have found very 
little in Washington, D.C. that is ever revenue neutral.
    Mr. Meadows. How can we make sure of that?
    Mr. Haislmaier. The answer, Congressman, I think is 
Congress would have to change the statute to specify that and 
to clarify that. It was not clarified and the Administration in 
response to the concerns raised in Congress came out and said 
they would run it on a revenue neutral basis but then later 
changed in the most recent regulations and backed away from 
that.
    Absent statutory clarification, I am not sure how you would 
do that but I would defer to those such as Senator Sessions.
    Mr. Meadows. There needs to be a bipartisan effort to pass 
legislation that this should be revenue neutral in keeping with 
the original intent of the law?
    Mr. Chandler. Representative Meadows, can I add to that?
    Mr. Meadows. Go ahead.
    Mr. Chandler. The reinsurance provisions actually have a 
failsafe mechanism in them that calls for pro rata reductions 
in payments. Such a thing could be done with the risk corridors 
provision that might make insurance companies unhappy because 
they may have banked on having that backstop.
    If Congress wanted to make sure that risk corridors was 
revenue neutral, it would not, in my opinion, be particularly 
hard to add that into the statute.
    Mr. Meadows. I thank the indulgence of the Chair.
    Mr. Jordan. You bet.
    We have had Cartwright, Cummings and now Connolly, the 
three Caesars. Mr. Connolly is recognized.
    Mr. Connolly. Thank you, Mr. Chairman and thank you to our 
panel.
    Professor Chandler, I think you just put on the table a 
very productive idea for Congress' consideration. Surely, 
however, we have to acknowledge that would be the first 
bipartisan effort.
    Mr. Chandler. After you got rid of the class act.
    Mr. Connolly. Yes, but in terms of actually trying to make 
it work, there was no bipartisanship and still isn't. It would 
be a novel thought and welcome one.
    My friend from North Carolina, I am delighted to hear his 
enthusiasm for trying to put together a bipartisan coalition to 
make the bill better. I certainly would be glad to work with 
him in that effort because that is really what we ought to be 
doing with legislation, trying to make it better, trying to 
make sure it is working and trying to make sure it is 
efficacious.
    Mr. Meadows. Would the gentleman yield?
    Mr. Connolly. Yes, of course I would yield to my friend.
    Mr. Meadows. I would note that you were my first bipartisan 
co-sponsor on my bills, so I thank the gentleman.
    Mr. Connolly. It is just who I am I would say to my friend 
from North Carolina. Mr. Chairman, I am going to run out of 
time and I do have some questions.
    Mr. Jordan. Is the gentleman proposing some legislation 
that will limit taxpayer liability?
    Mr. Connolly. Actually, it was Professor Chandler who was 
proposing that and Mr. Meadows who picked up on it and I am 
simply chiming in saying, the whole blowout about 
bipartisanship with respect to this bill is a welcome shift 
here in Congress. See what you have started Professor Chandler.
    Professor Chandler, did I understand you to say in your 
testimony and previous questioning that your prediction is 
insurance premiums actually are going to go up under the ACA, 
correct?
    Mr. Chandler. They will go up relative to what would have 
happened because of the phasing out of the transitional 
reinsurance provisions as well as the risk corridor provisions.
    Mr. Connolly. On that point, it is early on but there is a 
preliminary report which was just issued, I guess, today by the 
Department of Health and Human Services, a 28-page report, that 
suggest that premiums were actually lower than we expected and 
there was more competition which primarily contributed to that 
and a healthy subsidy as envisioned by the ACA.
    Have you had a chance to look at that report? It is either 
today or yesterday.
    Mr. Chandler. I scanned something in the news this morning. 
I have not had an opportunity to look at it.
    Mr. Connolly. I would urge you to take a look at it because 
I would welcome your feedback. The early on data, which is not 
dispositive, seems to suggest we are actually lowering costs 
for consumers and health insurance premiums.
    Ms. Uccello, Christopher Holt of the American Action Forum, 
talking about risk corridors, said, ``The risk corridor 
reinsurance provisions made policy sense at the time of the law 
being drafted, make policy sense today and protect consumers. 
They do not constitute a bailout.'' Do you agree with Mr. 
Holt's statement?
    Mr. Uccello. I agree that they make sense, yes.
    Mr. Connolly. You agree that it makes sense and that they 
do not constitute a bailout?
    Ms. Uccello. Correct.
    Mr. Connolly. I am sorry, we have to hear you for the 
record.
    Ms. Uccello. Yes.
    Mr. Connolly. In your view, why were these risk management 
provisions necessary when the law was drafted?
    Ms. Uccello. Again, I think with the risk corridors, there 
was a lot of pricing uncertainty regarding who was going to 
purchase a plan, what their health spending would be and the 
fear was that insurers would be hesitant to participate in the 
market. Mitigating some of those risks is what the risk 
corridors do.
    Reinsurance and risk adjustment help reduce incentives that 
insurers may have to avoid high cost enrollees.
    Mr. Connolly. An expert from the Manhattan Institute, Mr. 
Femen, called risk mitigation strategies ``a virtuous cycle.'' 
He said, ``Risk adjustment mechanisms get you the buy in of 
insurers, they also help keep premiums at manageable levels 
while insurers develop enough experience to properly price 
plans of their own. This helps encourage people to enroll and 
in turn, helps insurers develop necessary pricing experience 
resulting in a virtuous cycle.''
    Do you share Mr. Femen's point of view?
    Ms. Uccello. I think he is right in terms of the risk 
mitigation programs encouraging participation, yes.
    Mr. Connolly. Do you also agree that risk adjustment 
mechanisms such as that help keep premiums at manageable levels 
while insurers develop experience to properly price their 
product?
    Ms. Uccello. I think that, yes, over time, insurers will 
have more certainty and will be able to price their premiums 
with more confidence and in doing so, be able to reduce the 
risk margin they include.
    Mr. Connolly. Finally, with respect to risk corridors, is 
that a novel idea unique to the ACA? Did we just come up with 
it or had that been floating around before in academic and 
economic circles?
    Ms. Uccello. I think a lot of us have mentioned that it was 
included in Part D.
    Mr. Connolly. Ah, under the Bush Administration?
    Ms. Uccello. Yes.
    Mr. Connolly. Thank you.
    Mr. Meadows. [presiding] I thank the gentleman from 
Virginia.
    Mr. Connolly. I would like to submit for the record a Los 
Angeles Times report that would indicate that the premium 
subsidy is actually going to be about 65 percent higher than 
CBO originally estimated.
    Mr. Meadows. Without objection, so ordered.
    Mr. Connolly. If I could, Mr. Chairman, I would also like 
to put in the record maybe something that suggests otherwise.
    Mr. Meadows. Without objection, so ordered.
    Mr. Connolly. I thank the Chair.
    Mr. Meadows. The Chair would like to recognize the 
gentlewoman from Wyoming, Ms. Lummis.
    Ms. Lummis. Thank you, Mr. Chairman.
    I am so delighted this panel is here.
    Ms. Uccello, I think actuaries are probably the most under-
appreciated and unknown group of people that make things tick 
in this difficult risk management environment, whether it is 
financial resources or social spending.
    I wish the Social Security Administration was turned over 
to actuaries instead of politicians. I think we would have a 
more fiscally sound program. When I was on our Wyoming 
Retirement Board, our actuary's name was Flick Fornia. He was a 
really funny guy and was able to explain to lay people like me 
the importance of actuarial soundness. Thanks for what you are 
doing.
    The committee's survey shows that insurance providers 
expect to receive payments. These are exchange plans, so they 
think they are going to receive payments, not make payments. 
How is it possible that given that the Administration thinks 
the program's receipts and outlays will be equal?
    Ms. Uccello. I would say a couple of things to that. First 
is that not having seen this data, it is difficult for me to 
comment on it. I would also caution that the risk corridors 
apply to qualified health plans or QHPs regardless of whether 
they are on or off the exchange.
    If this data was collected just reflecting on the exchange, 
it may be missing some of the off exchange QHP enrollment. That 
enrollment might be different from that on the exchange. That 
is one thing I would highlight.
    I think over time, again as I mentioned before, there is 
still a lot of uncertainty, so we are not going to know really 
for sure until after the end of the year how everything 
actually shakes out.
    Ms. Lummis. Mr. Haislmaier, could you respond to that as 
well?
    Mr. Haislmaier. Actually, the Risk Corridor Program only 
applies on the exchange. The Reinsurance Program applies both 
on and off the exchange. In fact, that was one of the 
interesting things, that the risk corridor does not apply off 
the exchange.
    Ms. Uccello. It applies off the exchange to QHPs.
    Mr. Haislmaier. A QHP is only on the exchange. That is how 
the law works.
    Ms. Uccello. Larger plans that are very similar to QHPs on 
the exchange. I think the next panelist can probably provide 
more information on that.
    Ms. Lummis. I will pursue that line of questioning with 
him.
    For anyone on the panel, do you find it surprising that on 
October 1, 2013, 6 out of 15 insurers expected to receive 
payments from the Risk Corridor Program? Does that surprise 
anyone?
    Mr. Haislmaier. That is all I would know--not particularly.
    Ms. Lummis. If insurance or pricing plans actuate, 
shouldn't their risk corridor payment expectations be zero?
    Ms. Uccello. I guess I would want to know exactly when. Was 
it truly October 1 or was it a little time afterwards that they 
were retrospectively looking at because remember in the early 
days of the program, there were enrollment problems. That may 
have played into that. It is not clear without knowing more 
about the data.
    Ms. Lummis. Fair enough. I think that is a legitimate 
point.
    Does a positive risk corridor payment prior to the start of 
open enrollment indicate that insurers may be planning on under 
pricing their plans, expecting they might get bailouts under 
the 3R Program, Mr. Chandler?
    Mr. Chandler. It would not be, in my view, an irrational 
business strategy for a health insurer to deliberately under 
price its plan in order to hook people into their network, get 
them excited about their doctors and if worse came to worse, 
they would be back stopping most of the way by the Federal 
Government.
    Ms. Lummis. Mr. Haislmaier?
    Mr. Haislmaier. I have looked at the insurers participating 
in the exchange and written on this. One of the things I am 
always telling people, including my friends, is that this is 
not a monolith, they are not all the same.
    Other members have asked questions about these kinds of 
strategies. It is important to realize that different companies 
will approach this differently based on the kind of company 
they are.
    With that said, I would expect a smaller company, a less 
well known company, because there are a number of regional 
HMOs, for example, in these plans--WINhealth in your own State, 
for example. That is the kind of company that might use a 
strategy of discounting to gain market share. A more dominant 
company like Blue Cross in your State probably would not do it.
    I found it interesting that a company like Aetna where 60 
percent of their business is self insured employer plans, they 
are in more exchanges than any other company in the country. 
They are in 17 States and yet, as the CBO said, that is no more 
than three percent of their business.
    Interestingly enough, Aetna took the opposite approach. 
Aetna, from everything I can see, actually withdrew from four 
or five States at the last minute when their higher rates were 
not approved. Basically, from what I can tell, they took the 
strategy of we are willing to try it but we are not willing to 
lose money on it. We are going to price the premiums higher.
    Depending on the kind of company you are, they are going to 
come in in different ways. That is all I would point out.
    Ms. Lummis. Thank you, panel. My time has expired.
    I yield back.
    Mr. Meadows. The Chair would recognize the gentleman from 
Michigan, Mr. Bentivolio.
    Mr. Bentivolio. Thank you very much, Mr. Chairman. Thank 
you for holding this hearing.
    Over the past few years, we have argued that Obamacare was 
going to disrupt the insurance markets. This health care law 
has become a perfect example of how not to do health insurance 
reform.
    We should not bailout insurance companies to mask the fact 
that Obamacare is a disaster and hurts Americans. This hearing 
shows exactly why.
    Reinsurance is funded by an assessment of each of the 
roughly 158 million people who do not get their insurance 
coverage from the exchanges, some through union-backed plans 
and others through plans sponsored by employers. The government 
is assessing such plans $63 for each member which adds to $10 
million, then giving that money to insurers that sell through 
the exchanges.
    Mr. Graham, is it correct that the reinsurance provision is 
financed by a fee or tax on all health insurance plans?
    Mr. Graham. Yes, sir.
    Mr. Bentivolio. You made it clear and accurate earlier, if 
I am not mistaken, that the vast majority of the individuals 
with health insurance will be paying higher premiums to finance 
this reinsurance fund, am I correct in this understanding?
    Mr. Graham. Yes, sir.
    Mr. Bentivolio. Essentially, the reinsurance fund is a 
large transfer from the vast majority of Americans without an 
Obamacare insurance plan to the few Americans with an Obamacare 
plan?
    Mr. Graham. Agreed.
    Mr. Bentivolio. You mentioned in your testimony that higher 
than expected reinsurance claims indirectly affect taxpayer 
exposure to risk corridor bailouts. Can you again discuss what 
you mean by that?
    Mr. Graham. The risk corridors are such a moving target, I 
think that is one thing that has come out here. The reinsurance 
is a fixed target, a maximum of $25 billion over the three year 
period. If they do not collect the revenue expected, they 
cannot go anywhere else.
    If they only collect $18 billion over the three years, as 
Professor Chandler said, most of it is front end loaded, then 
the insurer has to look somewhere else. He is going to look for 
the risk corridor and there is a lot of latitude within the 
calculation of how you adjust the numerators and denominators 
to get your target versus your allowed costs that unless 
Congress steps in, as some of the other panelists suggested, 
and gets a precise definition and closes the loop on this 
thing, HHS could really drive a lot through the risk corridor 
payments.
    I think that is where you are getting the idea that 13 out 
of 15 of the insurers your staff surveyed, we are going to get 
money out of it. It must be because they are being very 
creative in how they are thinking they are going to liaise with 
HHS over the next three years.
    Mr. Bentivolio. Earlier, Mr. Meadows and Mr. Connolly were 
talking about making some fixes, correct, to Obamacare. I just 
want to assure you the only person I want to hear--should pass 
it before we can see what is in it--is from my doctor, so be 
assured I am going to read that bill before it is even voted 
on.
    With that, I yield back. Thank you very much.
    Mr. Meadows. I thank the gentleman from Michigan.
    The Chair would recognize the gentlewoman from Illinois.
    Ms. Kelly. Thank you, Mr. Chairman.
    First, I want to say I join in Ms. Lummis' statement about 
how important actuarial are and how we should definitely use 
their services. The only actual actuary here is you, Ms. 
Uccello, is that correct.
    It is my understanding that the payment formula for the ACA 
Risk Corridor Program is less generous to insurance companies 
than the one utilized in Medicare Part D. Specifically, the 
threshold at which risk sharing payments kick in is higher in 
the ACA risk corridors and the percentages of losses covered is 
lower. Do I have that right?
    Ms. Uccello. Yes. In the initial years of the Part D Risk 
Corridor Program, I think the thresholds were plus or minus 2.5 
percent whereas under ACA, it is plus or minus 3 percent.
    Ms. Kelly. When the Republicans passed risk corridors as 
part of Medicare Part D, the program was even more favorable to 
insurance companies than it is under ACA, correct?
    Ms. Uccello. Yes. The corridors were smaller so the 
threshold at which they had to bear the losses or keep the 
gains was more narrow.
    Ms. Kelly. Do you consider the risk management programs in 
Medicare Part D to be successful? Please explain your answer.
    Ms. Uccello. Under Part D, the Risk Corridor Program is 
intended to encourage plan participation by mitigating the 
pricing risk because there was fear that there would not be a 
lot of plans that wanted to participate in this program.
    If we look at the experience or even back then, the 
consumers had and have a wide array of plan choices. I think 
that suggests that the risk corridor at least helped encourage 
plan participation.
    The Reinsurance Program I think did help reduce premiums 
below where they would otherwise be without that program.
    Ms. Kelly. Is there just as much of a need for these three 
programs in the ACA as there was in Medicare Part D?
    Ms. Uccello. I think the risks for ACA are similar to those 
that existed for Part D, so I think the need is just as much, 
if not more, under ACA as they were for Part D.
    Ms. Kelly. Thank you.
    I yield back.
    Mr. Meadows. I thank the gentlewoman from Illinois.
    The Chair recognizes the gentleman from Tennessee, Mr. 
Desjarlais.
    Mr. Desjarlais. Thank you, Mr. Chairman.
    I thank the panel for being here today. Mr. Chandler, if 
you do not mind, I will start with you.
    As you know, in November 2013, President Obama offered a 
one year extension to allow individuals whose coverage was 
being canceled by Obamacare to keep their coverage. What kind 
of effect did this have on the average health of exchange plan 
risk pools?
    Mr. Chandler. It deteriorated the health of those pools 
because it provided an alternative for healthier individuals or 
people with less broad needs to seek out alternatives that 
Congress had banned.
    Mr. Desjarlais. Did the Administration make both the 
Reinsurance Program and the Risk Corridor Programs more 
generous to insurers in the fall?
    Mr. Chandler. Not by statute. In effect, by increasing the 
per member claims within the exchange plans, they increased the 
likely bill for the Transitional Reinsurance Program and they 
increased the likely amount that would be paid out to the Risk 
Corridors Program.
    Mr. Desjarlais. Have you estimated how much of a windfall 
insurers will receive from the Administration's changes to 
these programs?
    Mr. Chandler. I have made a series of estimates as to the 
likely increase in the cost of the Risk Corridors Program. I 
have not done so with respect to the Transitional Reinsurance 
Program.
    Mr. Desjarlais. You discussed in your written statement 
that risk adjustment contains incentives for insurers, fraud 
and manipulation that need to be carefully monitored. What did 
you mean by this?
    Mr. Chandler. We have not spoken much about risk 
adjustment. Risk Adjustment requires the insurer to attach some 
code or set of codes to people. There is a score for each code. 
If you have cancer, that is a 10. If you have the sniffles, 
that is a 1.
    The insurance industry then gets paid based not on how much 
they actually paid but on that score. There are occasions in 
which those scores can be fudged. There are occasions in which 
an insurer might have an incentive to try to get away with a 
little more than fudging.
    In my view, because of the amount of money involved, and 
because not all insurers are saintly, that needs to be 
monitored quite carefully by Congress.
    Mr. Desjarlais. How does this relate to privacy concerns 
for the individual?
    Mr. Chandler. In order to see whether insurers are 
accurately coding peoples' conditions, including things like 
prior miscarriages, cancer or HIV, someone has to actually look 
at the medical records.
    Yes, there are deidentification procedures that can be used 
but it may be that in some instances, those will be advertently 
or inadvertently breached, so there are at least concerns about 
privacy that are implicated by risk adjustment.
    Mr. Desjarlais. Would this privacy concern only be for 
those on the exchange or for people who do not go on the 
exchange as well?
    Mr. Chandler. No, people who are in small groups who are 
not on the exchanges are also covered by risk adjustment and 
therefore, even if you did not volunteer to participate in the 
Obamacare exchanges, there are issues with respect to privacy 
there too.
    Mr. Desjarlais. Thank you.
    Mr. Graham, with regard to Risk Corridor Program, what 
happens if insurers systematically set their prices too low?
    Mr. Chandler. The risk to the taxpayer increases 
proportionally.
    Mr. Desjarlais. The taxpayer is on the hook?
    Mr. Chandler. Absolutely.
    Mr. Desjarlais. This law would not exist today if the 
Supreme Court had not ruled that Obamacare is indeed a tax. 
When this bill was originally passed, the taxpayer, the average 
person out there, did not know they were going to be on the 
hook for this, did they?
    Mr. Chandler. Probably not.
    Mr. Desjarlais. Furthermore, if the system does not work as 
well as it was supposed to, which we are seeing--in fact, the 
only thing we have been wrong about to this point about the new 
healthcare law is that it is even worse than we could have 
imagined in terms of cost, access and quality of care.
    The people basically were sold a bill of goods when this 
healthcare law was passed. What are the risks of this 
deteriorating into a single payer system if we cannot afford 
the bailouts of the insurance companies like we are discussing 
today?
    Mr. Chandler. I think the risk is present. I think it is 
very present because one of the objectives that have been 
discussed here is that this means insurers will not shun the 
sick but we are not seeing that. We are still seeing plan 
design that is causing cancer patients, for example, to have 
huge out of pocket costs. We are not seeing the market arise 
like Medicare special needs plans.
    The neediest patients are going to be let down by Obamacare 
and that will perhaps increase the political pressure you are 
alluding to.
    Mr. Desjarlais. In my practice of medicine for 20 years 
before coming to Washington, when we first saw this law, a lot 
of people were concerned, including myself, that this whole law 
was simply a funnel into socialized medicine. This hearing 
today kind of points it more in that direction.
    My time has expired. I yield back.
    Mr. Jordan. [presiding] I thank the gentleman.
    Mr. Chandler, in one of your responses to Mr. Desjarlais, 
he talked about the rule changes made are going to result in 
additional dollars in the risk corridor provision, additional 
dollars going to insurance companies. You said yes to that.
    Can you hazard a guess as to how much that might be?
    Mr. Chandler. I have not been playing with my computer in 
the last hour. I cannot give you a point estimate. There are 
just too many variables involved. However, I think the order of 
magnitude we are talking about for this year, it would not 
surprise me to see it between $500 million and $1 billion.
    For subsequent years, it gets more difficult to estimate.
    Mr. Jordan. I would just point out, that range, $500 
million to $1 billion, is exactly what the committee determined 
the range was, around $730 million, by talking to the 
participants, talking to the insurance companies in the 
exchange.
    Mr. Chandler. Apparently so.
    Mr. Jordan. I have one last point I would make and then I 
will recognize the Ranking Member if he has a last point before 
we got to our next panel.
    This comparison with the risk corridor provision and Part 
D, it seems to me as I look at the two, first, Medicare Part D 
is a fundamentally different program in many ways. There has 
not been a bailout there and there is a specific appropriation 
which is not contained in this risk corridor provision we have 
been talking about. Is that accurate, Mr. Graham, those three 
points?
    Mr. Graham. Yes, sir.
    Mr. Jordan. Mr. Chandler?
    Mr. Chandler. I am not familiar with how Medicare Part D 
was funded, so I do not feel competent to answer that question.
    Mr. Jordan. Ms. Uccello?
    Ms. Uccello. I also do not know how the appropriations 
worked for that.
    Mr. Jordan. Mr. Haislmaier?
    Mr. Haislmaier. As to the first part, yes, there has not 
been a bailout. As to the second, I have not looked closely at 
the statute recently, so I will pass on that.
    Mr. Jordan. Thank you.
    Mr. Cartwright, one last word?
    Mr. Cartwright. Thank you, Mr. Chairman.
    I thank Representative Kelly for highlighting the fact that 
we do have the one actuary here today, Ms. Uccello. Thank you 
so much for coming and making things plain for us in the non-
actuary world.
    Mr. Graham, I did not mean to leave you out. One thing you 
mentioned was you are a Senior Fellow at the National Center 
for Policy Analysis, a non-profit, non-partisan, public policy 
research organization.
    You said that but in your written material, you said that 
is an organization that is dedicated to developing and 
promoting private alternatives to government regulation and 
control. Is that what it says in your written material?
    Mr. Graham. Yes, sir.
    Mr. Cartwright. Professor Chandler, the one question I had 
for you was in your written material, you explained that you 
are the principal of a blog and the blog's name is http/
acadeathspiral.org. Have I got that right?
    Mr. Chandler. Yes, you do.
    Mr. Cartwright. Mr. Haislmaier, you are from The Heritage 
Foundation, am I correct?
    Mr. Haislmaier. I am the Senior Research Fellow there, yes, 
sir.
    Mr. Cartwright. Those are all the questions I had.
    Thank you, Mr. Chairman.
    Mr. Jordan. I thank our panel for being here today and for 
your fine answers and testimony.
    We will take a short recess and get ready for our next 
panel.
    [Recess.]
    Mr. Jordan. The committee will be back in session.
    Dr. Cohen, thank you for joining us. Dr. Mandy Cohen is 
Acting Deputy Administrator and Director, Center for Consumer 
Information and Insurance Oversight, Centers for Medicare and 
Medicaid Services.
    Dr. Cohen, you know how this works. I think you caught some 
of the previous panel. You are recognized now for your five 
minutes.

STATEMENT OF MANDY COHEN, M.D., ACTING DEPUTY ADMINISTRATOR AND 
    DIRECTOR, CENTER FOR CONSUMER INFORMATION AND INSURANCE 
     OVERSIGHT, CENTERS FOR MEDICARE AND MEDICAID SERVICES

    Dr. Cohen. Thank you so much. Good morning, almost 
afternoon, Chairman Jordan, Ranking Member Cartwright and any 
of the members who might be listening elsewhere.
    I appreciate the opportunity to testify before you today on 
the Affordable Care Act's Premium Stabilization Program.
    Mr. Jordan. Dr. Cohen, I made a mistake, which happens from 
time to time. We are supposed to swear you in. Please rise and 
raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witness responds in the affirmative.]
    Mr. Jordan. Let the record reflect Dr. Cohen answered in 
the affirmative. I am sorry for the interruption. You may 
continue.
    Dr. Cohen. The health insurance market in 2014 looks 
drastically different than it did in the years before the 
Affordable Care Act was passed. It has created consumer 
protections from the worst industry abuses.
    Insurers are now prohibited, as you heard earlier, from 
charging higher premiums to enrollees because of their health 
problems and from charging women more than men, making prices 
fairer.
    Insurers can no longer refuse to accept consumers because 
of a preexisting health condition. With limited exception, 
plans are required to enroll enrollees regardless of health 
status, age, gender and other factors. They are also prohibited 
from refusing to renew coverage because an individual becomes 
sick.
    Insurance coverage is there when people need it because 
plans can no longer impose annual or lifetime dollar limits on 
essential health benefits. Americans, therefore, no longer have 
to worry about hitting a prohibitive dollar amount which could 
force a consumer into bankruptcy or to forego necessary care.
    Thanks to the Affordable Care Act, millions of Americans, 
many for the first time, are able to purchase high quality 
affordable health coverage, but access to affordable coverage 
for the uninsured is also beneficial to the millions of 
Americans who already had health insurance coverage.
    When the uninsured receive uncompensated care, the cost is 
passed along to every American family at a bill of about $1,000 
as reflected in higher taxes, higher premiums and higher health 
care costs. Thus, creating successful, viable insurance 
marketplaces is in the interest of all Americans, no matter 
where they get their health insurance.
    Because the consumer protections required by the Affordable 
Care Act dramatically changed the insurance market, Congress 
also created the premium stabilization programs we have been 
talking about today.
    These programs help ease the transition. The reinsurance, 
risk adjustment and risk corridors all work together to 
stabilize premiums for consumers and stabilize the marketplace 
for insurers by reducing insurer uncertainty about how the 
market reforms will play out for them.
    For example, the Risk Adjustment Program shifts funds from 
issuers with healthier populations to issuers with sicker 
populations, protecting against the potential effects of 
adverse selection.
    The Reinsurance Program, a temporary program, mitigates the 
cost of those high cost enrollees with pent up medical demand. 
The Risk Corridor Program, another temporary program, mitigates 
but does not fully compensate issuers with unexpected high 
claims costs due to unexpected gains and losses.
    Together, these three programs help stabilize premiums for 
consumes, while allowing insurers time to gain experience 
competing in a changed health insurance marketplace. The first 
payments for these programs do not begin until a full year from 
now.
    The Premium Stabilization Program was enacted by Congress 
to ease insurers entrance into a new and different market and 
in that new market has been long overdue for Americans. The 
Affordable Care Act contains several requirements that greatly 
restrict or end previous insurance practices that were not good 
for consumers.
    Insurers are subject also to new scrutiny and to 
regulation. They are required to issue insurance coverage to 
all applicants, regardless of their medical history and age and 
can no longer rely on annual or lifetime limits to avoid paying 
for consumers when they get sick.
    The medical loss ratio, something we have not talked about 
yet today, also caps their profits and administrative expenses. 
Rate review is helping to provide more transparency into these 
rates these companies charge.
    Despite these tough requirements, what we are seeing is 
that insurers are eager to enter the new marketplace offering 
competitively priced plans that over 8 million Americans have 
selected.
    On the whole, we are seeing that insurance plans offer 
stable market plan premiums for the 2015 benefit year. In a 
recent public report to the financial sector, Wellpoint and 
Aetna have both expressed confidence in their 2015 pricing 
environments predicting premium increases in only the single 
digits. We are also seeing that insurance plans plan to expand 
into the marketplace for the first time.
    Because many people enrolled during the end of open 
enrollment, at the end of March, with insurance coverage 
beginning on May 1, insurers likely only had at most six weeks 
of meaningful claims data to analyze in order to understand 
where they are in risk order payments.
    The first quarter claims are likely to be unrepresentative 
of claims over the course of the year for the full 2014 benefit 
year.
    Insurers' early projections about 2015 suggest that they 
are finding the health insurance marketplace to be a 
competitive new market and that the Affordable Care Act is 
working as intended to give Americans access to high quality, 
affordable health insurance coverage.
    With that, I thank you and look forward to your questions.
    [Prepared statement of Dr. Cohen follows:]
    [GRAPHIC] [TIFF OMITTED] 88826.041
    
    [GRAPHIC] [TIFF OMITTED] 88826.042
    
    [GRAPHIC] [TIFF OMITTED] 88826.043
    
    [GRAPHIC] [TIFF OMITTED] 88826.044
    
    [GRAPHIC] [TIFF OMITTED] 88826.045
    
    [GRAPHIC] [TIFF OMITTED] 88826.046
    
    Mr. Jordan. Thank you so much, Dr. Cohen.
    The Chair recognizes the gentleman from North Carolina.
    Mr. Meadows. Thank you, Mr. Chairman.
    Thank you, Dr. Cohen, for being here and testifying.
    Let me pick up on a couple of words I guess I heard just 
now in your testimony. The insurers, in terms of increased 
premiums, are only going to see increases in premiums in the 
single digits. Is that what your testimony said?
    Dr. Cohen. That is correct.
    Mr. Meadows. The way I guess the ACA was supposed to reduce 
health care costs, now we are happy that the increases are only 
in the single digits, so we need to say that relatively, it is 
not double digits. That is why we are happy about it?
    Dr. Cohen. We are extremely happy. Again, what we are 
seeing right now are proposed rates in the single digits. That 
means the process needs to go forward at the State level around 
rate review. The Departments of Insurance at the State level 
will certainly scrutinize those.
    Mr. Meadows. Single digits being low single digits or high 
single digits?
    Dr. Cohen. We are seeing some places where there is even a 
decrease.
    Mr. Meadows. I mean overall. Overall, what are you 
anticipating?
    Dr. Cohen. We are looking at single digits. I think time 
will tell. We are early in the process. We are very happy to 
see proposed rates that are in the single digits.
    Mr. Meadows. We are happy that our rates were supposed to 
go down by $2,500 a family and we are happy they are only going 
up by single digits?
    Dr. Cohen. If you look at what rates were prior to the 
Affordable Care Act and the rate increases historically, we are 
very happy.
    Mr. Meadows. You mentioned competition in your testimony. 
How do you think we have additional competition? Let me tell 
you the reason why. My son is looking potentially to start a 
family, get married, so I said I would like you to go out and 
get some quotes for medical insurance to make sure you are 
providing for your family.
    The insurer said we cannot really give you quotes, you need 
to go on healthcare.gov. How do you see that as competitive?
    Dr. Cohen. With the health insurance market launching this 
past year, it is the first time that consumers were able to go 
to one place and compare apples to apples, the types of 
insurance products that would be available to them.
    Obviously that is the portal where many folks, more than 85 
percent of those 8 million Americans, got financial assistance 
to make premiums even more affordable.
    Mr. Meadows. But they are not, Dr. Cohen. I am on Obamacare 
now. My premium is not less than it was, my coverage is not as 
good in some places and honestly, some of my coverage, I have 
to buy things that we would never use like maternity coverage 
just because of our age.
    Is that part of what you factored in, that we will have to 
buy things that we will never use and that is how we pay for 
this?
    Dr. Cohen. As you know, part of the intent of the law is to 
give access to affordable coverage for millions of Americans 
and setting a floor for coverage where we have folks who can 
purchase plans that provide essential benefits for everyone.
    Mr. Meadows. That does not answer my question. It is a 
great answer but that was not my question. My question is do 
Americans have to buy coverage on things they will never use 
like maternity coverage that we will never use? Do you have to 
do that in order to make this thing pay?
    Dr. Cohen. I think the great thing about the marketplace is 
the transparency that it brings.
    Mr. Meadows. I did not ask about transparency, I asked, yes 
or no, do you have to buy a product that you will never use to 
make it work, yes or no?
    Dr. Cohen. We have ten essential health benefits, maternity 
is one of those.
    Mr. Meadows. You have to buy maternity even though you may 
never have a child?
    Dr. Cohen. That is correct.
    Mr. Meadows. Are there other things that you have to buy 
that you may never use?
    Dr. Cohen. It depends on your personal family situation and 
your medical situation. As an internist, a primary care doctor, 
sometimes you do not know what that medical situation will be 
going forward.
    Mr. Meadows. Maternity is one that you can probably analyze 
pretty well for somebody that is in their fifties?
    Dr. Cohen. It is a minimal essential benefit that we wanted 
to make sure all Americans have access to.
    Mr. Meadows. You wanted to make sure they had a benefit 
they would not use?
    Dr. Cohen. We wanted to make sure that all Americans had 
access to some essential health benefits.
    Mr. Meadows. I yield back.
    Thank you, Mr. Chairman.
    Mr. Jordan. I thank the gentleman.
    I now recognize the gentleman from Pennsylvania.
    Mr. Cartwright. Thank you, Dr. Cohen, for coming here 
today.
    I took note of the fact that you testified you are happy. 
We frown on that sort of thing here in the Oversight and 
Government Reform Committee.
    Dr. Cohen. Yes.
    Mr. Cartwright. I gather what you are happy about is these 
things we read about, that health cost increases in this 
country are the lowest they have been in the last 50 years. 
Have you seen those things?
    Dr. Cohen. Yes.
    Mr. Cartwright. Is that contributing to your sense of 
happiness, Doctor?
    Dr. Cohen. There are many things, but yes, that is one of 
them.
    Mr. Cartwright. I remember, as an employer, and my friend 
from North Carolina was also an employer before joining me here 
in the Congress, paying annual premium increases for our staff 
of 10, 15, 20 and sometimes 25 percent. Sometimes it was 
staggering, some of the increases we were paying over the last 
15 years.
    That is what made me decide we have to do something 
different with health care in this country. I was not sure what 
it was but something different has happened.
    I thank you for your testimony.
    The premise of today's hearing is that the ACA's 
reinsurance, risk adjustment and risk corridor programs are 
taxpayer bailout programs for insurance companies. Is this 
accurate? The Republicans point to recent regulatory changes 
made by HHS as support for their argument that these programs 
are going to result in a bailout for insurance companies.
    It is my understanding that the Risk Adjustment Program is 
funded by transfers between insurance companies, is that 
correct?
    Dr. Cohen. That is correct.
    Mr. Cartwright. The Risk Adjustment Program is budget 
neutral by statute, am I correct in that?
    Dr. Cohen. That is correct.
    Mr. Cartwright. Any claims that regulatory changes to the 
Risk Adjustment Program will result in greater costs to the 
taxpayer are false, am I correct?
    Dr. Cohen. That is correct.
    Mr. Cartwright. The department has announced two sets of 
changes to the Reinsurance Program centered on lowering the 
attachment point for enrollees' high cost claims and changing 
how potential collection shortfalls are addressed.
    Dr. Cohen, can you describe the changes the department has 
made to the Reinsurance Program?
    Dr. Cohen. The Reinsurance Program, by law, we are 
obligated to pay out $10 billion. Again, we modeled this early 
on and as we had better information around premiums and 
additional data, we were able to modify both our attachment 
point and our co-insurance rate on the program in order to make 
sure that we were fulfilling our statutory obligation of paying 
out the $10 billion.
    Mr. Cartwright. By statute, the Reinsurance Program is 
funded solely by contributions from insurance companies, the 
reinsurance pool amount, am I correct?
    Dr. Cohen. That is correct.
    Mr. Cartwright. That is set by statute, right?
    Dr. Cohen. Correct.
    Mr. Cartwright. Reinsurance payments cannot exceed what is 
collected from insurers, right?
    Dr. Cohen. That is right.
    Mr. Cartwright. Can you explain the department's changes to 
the Risk Corridor Program?
    Dr. Cohen. The Risk Corridor Program is designed to 
interact with all of the other programs and protect the 
insurance companies as they transition to this new marketplace 
from the uncertainty of pricing.
    We have made two changes to the Risk Corridor Program. The 
first was related to the transitional policy as mentioned 
before. In States that have chosen to take that transitional 
policy, we have made an adjustment to the risk corridor 
formula.
    The second applies to all States. That is related to the 
administration costs and the ongoing cost related to 
transitioning to the marketplace for the insurers.
    Mr. Cartwright. In April, the Congressional Budget Office, 
nonpartisan, estimated that the Risk Corridor Program would be 
budget neutral over its three year life. Then in May, the 
department stated that it continues to project that risk 
corridor collections will be sufficient to pay for all risk 
corridor payments.
    Dr. Cohen, do you have any reason to doubt the accuracy of 
CBO's estimates and HHS' statement?
    Dr. Cohen. No. That is where we believe we will be with the 
program.
    Mr. Cartwright. I am almost finished.
    Dr. Cohen, you went to Cornell and then you went to the 
Yale Medical School. You are an Internal Medicine specialist. 
You are a physician, right?
    Dr. Cohen. Correct.
    Mr. Cartwright. In your opinion, is it accurate to 
characterize the reinsurance, risk adjustment and risk corridor 
programs as a ``bailout''?
    Dr. Cohen. No. Again, these are temporary programs meant to 
transition folks to the new marketplace. As a physician, making 
sure that folks have access to affordable, high quality care is 
really the goal here and mitigating any transition to that has 
been the goal.
    Mr. Cartwright. Do you call it a bailout?
    Dr. Cohen. No.
    Mr. Cartwright. Thank you. I yield back.
    Mr. Jordan. I thank the gentleman.
    Doctor, again, thank you for being here.
    How many people are in the exchange program today, how many 
Americans?
    Dr. Cohen. Eight million.
    Mr. Jordan. They used to give us a periodic update on the 
numbers. It seemed for a while it was every hour they were 
telling us how many folks were enrolling. Now we do not hear 
from them.
    Is there a reason why we do not hear from the 
Administration on what is happening with how many people are 
enrolled and what the overall number is? Is it just staying 
right at 8 million or is there some difference between that 
number that was announced a while back and what is happening 
today?
    Dr. Cohen. As you know, open enrollment, that period, ended 
at the end of March. The vast majority of folks cannot enroll 
at this point until we open enrollment again later this fall.
    If folks have a change in life circumstances, they can come 
in and apply for coverage--if they are graduating from college 
or lose a job etc. Again, it is a more I think a moment in time 
where we are outside of the enrollment time period.
    Mr. Jordan. In answer to one of Mr. Cartwright's questions, 
you mentioned you have confidence in the CBO's April assessment 
that this was going to be budget neutral, the risk corridor.
    Even though just two months prior to that, the CBO 
estimated it was going to be a windfall for the taxpayers to 
the tune of about $8 billion. In the previous panel, Mr. 
Chandler indicated that he anticipates an actual cost, this is 
not going to be budget neutral, that it is going to cost the 
taxpayers. Do you agree with that?
    Dr. Cohen. I think we are in a highly speculative time. We 
are very early on in the year. As mentioned with open 
enrollment closing at the end of March, I think most of the 
enrollees are only just starting to use their coverage and 
thus, we do not really know how the rest of the year is going 
to pay out.
    Mr. Jordan. What I tried to stress was Mr. Chandler's 
prediction squares with what insurance companies are telling 
this committee, that they do anticipate receiving a payment 
from the taxpayers to the tune of about $700 million. That 
squared with what Mr. Chandler anticipates as well, somewhere 
between $500 million and $1 billion. Do you agree with that?
    Dr. Cohen. I think we are all in a period of time for 
estimates. As you saw, there is a lot of differing opinions on 
those estimates. We believe that the program will ultimately be 
budget neutral.
    Mr. Jordan. I am talking about now though. Again, we went 
from $9 billion to zero to now, I think and what people in the 
program tell us, that they are going to receive money, so it is 
moving in this direction, not in the right direction for 
taxpayers.
    Let me turn to another subject. If, in fact, it does cost, 
do you think you have the authority to cover those costs and 
make those payments?
    Dr. Cohen. I am not the lawyer, but my understanding is 
that our authority to make those payments comes from our 
ability to levy user fees. I do believe we have that authority.
    Mr. Jordan. How would that work exactly?
    Dr. Cohen. Again, not the lawyer, but we just recently 
provided legal analysis to GAO on this. I would be happy to 
share that with the committee.
    Mr. Jordan. We look forward to getting that.
    Say it costs more than $700 million, is there a point where 
if the cost is so high, say it is $9 billion or $10 billion, is 
there any point where you think you do not have the authority, 
you cannot do the user fees, and you have to actually talk to 
the Legislative Branch and something has to be worked out with 
the Legislative Branch before you can proceed?
    Dr. Cohen. Again, we believe the program will operate in a 
budget neutral manner.
    Mr. Jordan. My question is you believe you have the ability 
to pay, you say you are going to do that via user fees. We 
think there is a constitutional concern there as outlined 
primarily by Senator Sessions a little bit ago. You think you 
can do it and use user fees.
    I am asking is there a point where you do not think that 
works, where this is so big that the amount you have to pay out 
is at such a level that you cannot do that?
    Dr. Cohen. Talking about our legal analysis about user 
fees, my understanding from our lawyers is that we have the 
authority to do that.
    Mr. Jordan. I would yield to the gentleman from Florida.
    Mr. DeSantis. I thank the Chair.
    Dr. Cohen, in terms of the power of the purse issue, as you 
look at the text of the 2010 health care law with respect to 
risk corridors, in that law, did Congress appropriate a sum to 
be spent in the Risk Corridor Program?
    Dr. Cohen. I do not believe so.
    Mr. DeSantis. I do not believe so either. The way this 
typically works, according to the Constitution, Article I, 
Section 9, Clause 7, ``No money shall be drawn from the 
treasury but in consequence of appropriations made by law.''
    As I read it and you agree with me about what the law said 
and then as I read the Constitution, that tells me these 
payments need to be appropriated by Congress. Yet I think the 
Administration's position is they can simply make these 
payments without Congress making a single dime's worth of 
appropriations by law, is that correct?
    Dr. Cohen. Again, I believe that we are using our authority 
to levy user fees to make those payments.
    Mr. DeSantis. User fees on what?
    Dr. Cohen. User fees on the insurance companies who need to 
pay to us or make the collections to us before we pay out.
    Mr. DeSantis. What are they using exactly, to make it a 
user fee?
    Dr. Cohen. We are providing a service to stabilize market 
premiums.
    Mr. DeSantis. I think at the end of the day, we have the 
power of the purse. They could have appropriated money for this 
in there but it sounds to me that there is just a slush fund 
and somehow that can be put out however CMS sees fit. I do not 
think that is the way the founding fathers envisioned it 
working.
    Let me ask you this. The New York Times recently reported 
that HHS is having difficulty verifying the information of 
about 25 percent of people currently enrolled in the exchanges 
under Obamacare.
    Has the government sent subsidies to insurance companies 
for anyone that has not been able to verify coverage for it to 
your knowledge?
    Dr. Cohen. The way the statute is written and the way we do 
eligibility determinations, when someone goes through the 
healthcare.gov process, they put in several pieces of 
information, one of which is income, which we immediately 
verify through our federal data hub. We verify through the IRS 
and we verify through a private source.
    If we cannot immediately verify their income, then they are 
asked to provide documentation for that income and by statute, 
are given a presumptive eligibility based on that and have a 
90-day window to submit documentation to us.
    Mr. DeSantis. Is the answer no, then, that any subsidy 
money that has gone to an insurance company for a particular 
individual, all of those individuals have been verified so 
there is not an issue of people getting subsidies who, in fact, 
are not entitled to them?
    Dr. Cohen. Again, by statute, if we cannot immediately 
verify them through the electronic mechanism of healthcare.gov 
and the federal hub, then they are, by statute allowed a 90-day 
period in which to submit documentation and are given a 
presumptive eligibility and allowed to enroll on that plan.
    Again, we need that documentation and allow them to 
continue on in that plan but there is a 90-day period there.
    Mr. DeSantis. The 90-day window has not elapsed for anybody 
yet?
    Dr. Cohen. The statute also contemplated that in the first 
year of this program, it is going to be new for us, it is going 
to be new for the consumer and that submitting documentation 
was going to be a new process and allowed us to have the 
flexibility to give folks extra time. We have given folks some 
extra time but that is not limitless.
    Mr. DeSantis. How will the Administration go about actually 
recouping unlawful subsidy payments received by insurance 
companies? Assume that as the year goes on, it is clear--the 
New York Times says 25 percent--you have not been able to 
verify or have had difficulty, say 10 percent of the people are 
having subsidies directed to insurance companies and are not 
eligible for those, how do you get the money back for the 
taxpayer?
    Dr. Cohen. In the law, there is a reconciliation process 
the IRS is in charge of in terms of making sure we recoup the 
costs at the end of the year of verifying income at the time.
    Mr. DeSantis. Is the IRS going after the individual?
    Dr. Cohen. That is correct. There is a true up with the 
individual on your tax bill.
    Mr. DeSantis. Wow. When we want emails from the IRS, they 
are lost but they are going to be going after people for their 
health insurance.
    Let me clarify the 8 million number because I know CMS has 
stopped putting out the updates. Does the 8 million mean 8 
million people who have logged on through the website or does 
it mean 8 million people who actually have insurance they have 
paid a premium for?
    Dr. Cohen. It means $8 million people who have selected a 
plan through healthcare.gov.
    Mr. DeSantis. You are not saying that 8 million have 
actually paid premiums at this point?
    Dr. Cohen. We are still trying to understand that number 
and we will have that later in the year.
    Mr. DeSantis. I have heard different estimates, Mr. 
Chairman, about the number of people who have paid their first 
months and there could even be a dropoff after that. I 
appreciate the 8 million number but in the interest of being 
honest and transparent to the American people, I think we 
should explain what that means.
    I yield back.
    Mr. Jordan. I thank the gentleman.
    That raises the question was the CBO estimate based on 8 
million or some other number, do you know, Dr. Cohen?
    Dr. Cohen. Sorry, which CBO estimate?
    Mr. Jordan. The CBO estimate that this went from the 
windfall for the taxpayers to the budget neutral number in 
April. Was that based on an 8 million person enrollment?
    Dr. Cohen. I am not sure how the CBO did their analysis. I 
only know how we did our own estimates. I would say we were 
very pleased with going beyond what CBO estimated we would 
enroll in the marketplace in terms of the 8 million. Again, we 
are still early on in the year.
    Mr. Jordan. Do you believe that 8 million is high or do you 
think it is lower than that based on what Congressman DeSantis 
just talked about?
    Dr. Cohen. The eight million who have enrolled?
    Mr. Jordan. Yes.
    Dr. Cohen. Again, those are the number of folks who have 
chosen a plan.
    Mr. Jordan. I understand.
    Dr. Cohen. We have heard from the insurance companies who 
have given financial reports at various industry conferences 
that they have seen a high rate of paying their premium and 
continuing on that plan.
    Mr. Jordan. When will you have a more definitive number?
    Dr. Cohen. Later in this year.
    Mr. Jordan. Later meaning when?
    Dr. Cohen. I do not know exactly when.
    Mr. Jordan. You said on the user fee issue, you sent a 
report to GAO. When did you send that report?
    Dr. Cohen. I think recently, in the last several weeks, but 
I can get that for you.
    Mr. Jordan. This is news to the committee, news to the 
staff, that you have a user fee analysis for how this is 
constitutional. We would like to see that and we have not.
    Dr. Cohen. Certainly.
    Mr. Jordan. Mr. Cartwright?
    Mr. Cartwright. Thank you, Mr. Chairman.
    Maybe I can weigh in on that very topic. In May 2014, an 
analysis by the Congressional Research Service suggested that 
the Secretary of HHS does have authority to make such payments 
in the unlikely event they would have to be made and that 
authority could be derived from appropriations language in the 
President's budget for fiscal year 2015 giving the Centers for 
Medicare and Medicaid Services, CMS, the general authority to 
collect ``such sums as may be collected from authorized user 
fees which shall be credited to this account and remain 
available until expended.''
    Are those the user fees you were discussing, Dr. Cohen?
    Dr. Cohen. I believe so, but again, I would want the 
committee to review our legal analysis.
    Mr. Cartwright. I am going to ask, Mr. Chairman, that we 
make the CRS May 2014 report a part of the record.
    Mr. Jordan. Yes, and you referenced the President's budget. 
What is that?
    Mr. Cartwright. It says right here, the President's budget 
for fiscal year 2015 giving the CMS the general authority to 
collect such sums as may be collected from authorized user 
fees. I have the CRS report here and ask unanimous consent.
    Mr. Jordan. Without objection, let it be entered in the 
record.
    Mr. Jordan. The President's budget is not always something 
that Congress passes. I do not know what binding authority it 
has. I trust CRS and I will look at it, but I am not following 
that, frankly. The President proposes all kinds of things that 
Congress does not like. Just because he proposes it, does not 
mean it is constitutional.
    Are there further questions for the Doctor?
    Dr. Cohen, we want to thank you for being here today. Good 
luck.
    Dr. Cohen. Thank you.
    Mr. Jordan. We are adjourned.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned.]


                                APPENDIX

                              ----------                              


               Material Submitted for the Hearing Record

[GRAPHIC] [TIFF OMITTED] 88826.047

[GRAPHIC] [TIFF OMITTED] 88826.048

[GRAPHIC] [TIFF OMITTED] 88826.049

[GRAPHIC] [TIFF OMITTED] 88826.050

[GRAPHIC] [TIFF OMITTED] 88826.051

[GRAPHIC] [TIFF OMITTED] 88826.052

[GRAPHIC] [TIFF OMITTED] 88826.053

[GRAPHIC] [TIFF OMITTED] 88826.054

[GRAPHIC] [TIFF OMITTED] 88826.055

[GRAPHIC] [TIFF OMITTED] 88826.056

[GRAPHIC] [TIFF OMITTED] 88826.057

[GRAPHIC] [TIFF OMITTED] 88826.058

[GRAPHIC] [TIFF OMITTED] 88826.059

[GRAPHIC] [TIFF OMITTED] 88826.060

[GRAPHIC] [TIFF OMITTED] 88826.061

[GRAPHIC] [TIFF OMITTED] 88826.062

[GRAPHIC] [TIFF OMITTED] 88826.063

                                 
